Build The Best Strategy to Deal with Chargebacks

Given the financial cost and potential risks of chargebacks on your business, it is important to know how they arise, how to effectively combat them, and how to enact sound strategies to avoid chargeback disputes in the future.

Chargeback disputes can go from feeling like an annoying gnat in your face to a huge swarm threatening to take every last ounce of your spirit and drive. Chargebacks are meant to protect customers from fraudulent charges, but are sometimes used as a way to communicate discontent with fitness clubs and organizations. Given the financial cost and potential risks of chargebacks on your business, it is important to know how they arise, how to effectively combat them, and how to enact sound strategies to avoid chargeback disputes in the future.  

What are chargebacks?  

A chargeback is any transaction that has been disputed by a member. To initiate a chargeback, an individual simply contacts their bank to inform them the funds should not have been withdrawn. Typically, banks require chargebacks to be requested within 90-120 days of purchase.  

The most common reasons for chargebacks include:  

  • No credit issued - the customer requested a refund or return of funds that was never executed
  • Non-receipt - the transaction isn’t recognized because no receipt of payment was provided to the customer
  • Improper authorization - the customer denies authorizing the transaction to take place or authorization was completely revoked by the customer to allow the business to continue drafting payments  
  • Duplicate processing - the customer only authorized one transaction but was charged more than once for the same thing

What is the process for initiating a chargeback?

  1. The member contacts their bank to reverse the transaction.  
  1. The issuing bank investigates based on information provided by the member, and if they deem the transaction invalid, they overturn it and file a chargeback.  
  1. These funds are withdrawn from the payment processor and transferred back to the customer’s bank (known as a conditional refund).
  1. The payment processor receives all details about the chargeback (date, amount, reason code) and forwards this information to your business. This will be in the form of a physical letter to your business address and often an accessible and interactive report in your payment processor’s online portal.  
  1. You review the information and determine whether you want to accept the chargeback or fight the dispute and uphold the original transaction.  
  1. If you choose to fight the chargeback, you must provide the requested documents within the designated timeframe (usually 14 days). Depending on the chargeback reason code, evidence that your transaction was legitimate could be in the form of a signed membership contract, receipts, communication records, or a rebuttal letter explaining the situation.
  1. The processor sends all documents to the issuer, who then decides to rule in favor of the customer or the business.  
  1. If the issuer favors the member, they will keep the conditional refund.
  1. If the issuer favors the business, the bank reverses the conditional refund and returns the money to payment processor, and therefore, your business. Depending on the processor, you may still be charged a dispute fee.  

Why does this matter?

Chargebacks are incredibly time sensitive and force staff to stitch together supporting documentation and communicate through antiquated systems like fax and direct mail.  

Aside from being an administrative task that takes time away from member engagement, chargebacks pose a real threat to your business. If your chargeback percent is greater than 1% of charges in a given month, your business will be considered high risk. This could lead to:  

  • delayed funding from the processor  
  • a funding hold or rolling reverse  
  • complete pause in processing  
  • account suspension

How can I prevent chargebacks?

Unfortunately, chargebacks will happen. So, the goal is to reduce the number of chargebacks issue and to create as sound strategy to effectively combat chargeback disputes.  

Use these strategies to reduce the number of chargebacks at your club:

  • Use Contracts: The best way to ensure a customer is authorizing a transaction is by using contracts, specifically membership contracts. This documentation must include customer name, payment type on file, transaction amount, frequency of the transaction, end date of membership and cancellation terms. Having all of this in one place is the ultimate defense against chargebacks.  
  • Issue Receipts: After every transaction, it is best to print or email an itemized receipt to the customer, so that both you and they have a record on file of the payment.
  • Prioritize Communication: Many chargebacks disputes stem from damaged relationships or spiteful customers who are looking to recoup a buck for a service they already received. The more you can connect with your customer and member base, the better position you put yourself in to secure recurring revenue and prevent chargebacks.

Gains full-service billing provides you with a team harnessing 30-plus years of experience to provide comprehensive member billing support and make your life easier. To learn more, connect with a specialist today.

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