Rethink Commerce Blog

Disputes, Chargebacks and Refunds: Do You Know Which Is Your Worst Enemy?

Posted on November 24th, 2017 by

Disputes, chargebacks, and refunds can have a substantial effect on your revenue. We’ve already shown you how to avoid chargebacks and lower your chargeback rate.

In this post, we’ll take a look at the difference between disputes, claims, and chargebacks, then touch on how to develop an effective refund policy that will help you grow your business without disruption.

Understanding PayPal Disputes, Claims and Chargebacks

When your customers pay you through PayPal, they can open what’s called a dispute if they’re unhappy with a transaction. A dispute, which tends to be the easiest way to resolve an issue, involves direct communication between you and the customer while PayPal holds the funds. You have 20 days to resolve a dispute. If you don’t agree on a resolution to the dispute, the buyer can escalate the dispute to a claim, which means PayPal decides the issue based on documentation that you and the buyer provide.

If PayPal decides a claim against you, you can appeal this decision, but you’ll need to provide additional documentation. In fact, documentation of your policies and interactions with the buyer will be key throughout the dispute and claim process. It’s also important to communicate clearly and remain polite: don’t let things get heated!

If a buyer isn’t happy with how PayPal decides a claim, they can then choose to go to their bank and initiate a chargeback for a disputed transaction. Once an issue reaches chargeback stage, it’s no longer up to PayPal. Because chargebacks typically favor the buyer, it’s a good idea for you to resolve PayPal problems at the dispute or claim stage.

Also: Check out this Infographic on busting Payment Myths!

Are Disputes and Chargebacks Treated the Same?

When paying online, if a buyer is not happy with the transaction, she can either open a refund request or file a dispute with PayPal or a chargeback with her bank.

What you want is for the customer to open first a refund request. In order to facilitate that, your contact details should be easily available to the customer. Most refund requests that clients are denied by you, the vendor, end up in a dispute filed with PayPal (which become a chargeback if you still don’t accept the refund) or directly a chargeback.

Usually, commerce provides do not treat disputes and chargebacks the same way, they treat disputes as a refund request because they understand the impact they can have on your business. At 2Checkout, we do the same and provide responsive notifications to you, the vendor, and enable clear communication between your team, the customer and the PayPal throughout the process, creating a paper trail that you can rely on later if needed. No matter what happens, we want to be able to provide the right information.

The aim is to resolve as many disputes as possible and not let them reach the chargeback stage.

Setting a Smart Refund Policy

One of the best ways to protect yourself against disputes, claims, and chargebacks is to establish and enforce a clear refund policy. There are many refund policy tools out there that can help you with this, but the main elements your policy should include are:

  • What items are eligible for a refund and what condition they must be in (unused, not downloaded, etc)
  • Why customers may apply for a refund (for defects or items not received)
  • How to request a refund (email, phone, online or other)
  • When customers can request a refund (within 30 days of purchase is a typical timeframe)

Armed with these core elements, you can create a crystal clear refund policy that works for you and your customers.

Reject Refunds with Caution

If you must reject a refund request, be sure you’re doing so for the right reasons, in line with your refund policy. You’ll want to be able to show that your customer’s problem has been addressed already or that the request violates the refund policy that the shopper agreed to by making a purchase. If you don’t have a solid, well-documented reason for rejecting a refund, you risk getting a chargeback on the transaction, thereby losing the value of the order as well as the time your team spent dealing with the issue.

Refunds Can Be Your Best Friend

Because they help avoid chargebacks, refund requests can actually be your best friend. Think of these requests not as an inconvenience, but as an opportunity to work through a customer problem, keep the money and create a happy customer. Taking the time to provide excellent service and resolve a problem to a customer’s satisfaction can actually make a customer happier than never having an issue in the first place.

Chargebacks Are Your Worst Enemy

On the other hand, the chargeback is clearly your worst enemy because it tends to cost you money and customers at the same time. By the time your customers are frustrated enough to resort to a chargeback, they don’t want to deal with you anymore and are willing to appeal to a higher authority to solve their issue. You’re likely to lose this customer for life, not just for one transaction. Worse, the customer may share this negative experience with others, discouraging them from becoming your customers.

 

Now that you understand the differences between disputes, claims, and chargebacks, are you ready to create a refund policy that will help avoid them all? Tell us what you come up with in the comments!

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Magdalena Nicola

Director, Payment Chargeback Operations

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