The real cost of credit card chargebacks on your business

What does a credit card chargeback cost?

The cost of a chargeback is measurable in direct costs, time and opportunity cost. In addition, if your business is hit by multiple chargebacks, your merchant may suspend your account. This will result in a temporary or permanent restriction on online trading. Nightmare. This is the most serious impact of chargeback costs as it could prevent your business from functioning. Our ASSESS pre-fraud solution helps businesses prevent chargebacks, by blocking risky sign-ups and new accounts at the first point of contact.


The real cost of credit card chargebacks on your business


A list of costs of chargebacks 

  1. Direct cost of a lost sale; profit and revenue impact when a chargeback is made

  2. Sales processing time costs

  3. Cost of shipping out and possibly inbound depending on your return terms

  4. Processing time as goods are double-handled and returned to stock / written off

  5. Packaging materials and handling

  6. Time spent negotiating / in dispute with consumer and  / or card issuer

  7. Opportunity cost of dealing with chargeback at the expense of other activity

  8. Opportunity cost of lost stock if goods cannot be resold

  9. Manufacturing or purchase costs of goods and replacement goods

  10. Training time to teach staff chargeback process / staying up to date with process changes

  11. Time spent reporting internally on chargeback status

  12. Time adjusting accounts if sale / chargeback fall between trading periods

  13. Unlucky for some. Suspension of trading.

Logically, the more you trade online the more often you may be hit by chargebacks. Businesses selling goods that are relatively low value (<$150) are more likely to be hit than businesses selling high value items. Also, businesses providing digital services are more likely to be hit than businesses shipping physical goods. This is because physical goods are easier to trace and it’s harder to deny receipt.

How to prevent chargebacks. Stop bad email addresses at the door.

Two pieces of advice for the digital service provider: have clear logging systems so that you can be as robust as possible if you refute a chargeback claim; and prevent people who use disposable email addresses from buying your services. We see a clear link between chargebacks and the use of disposable email addresses.

It's not always easy to find chargeback information via banks and merchant account providers. Most of the information readily available is consumer facing, rather than business facing.

This article from worldpay gives some useful detail:

For more reading about chargebacks, including steps to prevent them read our latest chargeback blog article.


Written by: Jo

Thursday, 7 April 2016