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Chargebacks: What they are and how to avoid them

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Merchants of all shapes and sizes incur them. As a side effect of doing business it’s hard not to sustain them at least part of the time. But what exactly are chargebacks, what do they mean to your business, and how can you avoid them, or at least limit their ability to negatively affect your day-to-day operations?

Chargebacks, put simply.
The simplest definition of a chargeback is a reverse credit-card transaction. But, even this description is vague enough to stay confusing. Maybe all-powerful Wikipedia can help:

“Chargeback typically refers to the return of funds to a consumer, forcibly initiated by the issuing bank of the instrument used by a consumer to settle a debt.”

That helps. The first part, about returning funds, sounds like a refund. The second part is a little more ominous. You might be thinking about product returns and the amount you see in a given time period. But you don’t need to worry there. If Joe Somebody buys a toolbox at your hardware store and returns it, you are NOT going to incur a chargeback, or a chargeback fee.

One good thing to remember is that a chargeback isn’t another name for a return of charges. A chargeback is a return of funds for other reasons. There are a few ways this can happen, but it is important to be aware that all of these occurrences are forcibly initiated by the bank. This can happen when a card is lost or stolen, if there is a processing error in accepting the card, or if a consumer disputes charges.

None of that sounds like a particularly negative policy for returning funds to consumers. But where problems arise is on the merchant end of the equation, where business owners ultimately bear the responsibility for the amount charged back to the company. That last statement is especially important for small businesses. The idea here is consumer safety. But the benevolent protectors of the little guy forgot to include small businesses in the mix.

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