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When a chargeback happens, the disputed funds are held from the business until the card issuer works things out and decides what to do.

If the bank rules against you, those funds are returned to the cardholder. Unfortunately, this can be a complicated and time-consuming process involving a lot of paperwork and documentation. Unless you work with a payment service provider like Square — more on that later. There are a few typical culprits behind payment disputes. Fortunately, there are systems and processes you can put in place to prevent them.

If a cardholder sees a charge from your business but never bought anything from you, it could mean fraud is at play. This usually prompts them to file a dispute. In these cases, a cardholder returns an item in expectation of a refund or account credit and receives neither. Cardholders sometimes file a dispute if they are dissatisfied with your product or service.

In the case of products, this is typically due to physical defects or an item not being as advertised. With services, the quality is more subjective and difficult to determine. Legitimate purchases can be mistaken as fraudulent due to simple confusion.

Recurring payments for subscriptions are beneficial for both businesses and cardholders, but they can also create a risk for disputes. Cardholders often forget about subscription renewals and will issue disputes to retroactively cancel payment. Generally speaking, the chargeback process can differ between payment processors, and it traditionally takes between 60—90 days to resolve. Here at Square, we use our proprietary machine-learning models to predict —and stop — many fraudulent transactions before they happen.

We also keep you informed of the status of your chargeback via convenient alerts in your Square Dashboard. Step 1: A purchase occurs. All chargebacks start with a customer making a purchase in person , in an app, or online. The merchant is also often asked for detailed evidence to prove that they did fulfill the order to the customer as described, including documentation like: Proof of shipping usually in the form of a tracking number, shipping receipt etc.

Sales or transaction receipt Matching bill-to and ship-to addresses Proof of delivery usually in the form of a delivery receipt from a shipping provider, a confirmation email etc. The provisional credit to the cardholder becomes permanent and temporary credit reversal takes place for the merchant.

The acquiring bank can push for arbitration at this stage if they wish. The cardholder will see a charge for the original transaction posted again on their account. The issuing bank rules that the merchant successfully refuted the chargeback, but chooses to file a second chargeback of pre-arbitration , due to new information from the cardholder, or because of a change to the chargeback code. Second Chargeback Pre-Arbitration : Fighting Another Round Not Applicable for Visa Basic flow of the second chargeback or pre-arbitration Mastercard, Discover and American Express allow for a 2nd round of pre-arbitration while Visa limits pre-arbitration to one round.

A second chargeback, also called pre-arbitration, occurs when, after a merchant disputes the first chargeback, the issuing bank pushes another chargeback on the same disputed transaction for any of the following reasons: There is new information from the cardholder There is a change to the chargeback reason The documentation provided by the merchant is incomplete, invalid or was not compelling When the issuing bank notifies the acquiring bank of the second chargeback, and that information is passed to the merchant, the merchant is again given the opportunity to accept or contest.

The merchant has not provided compelling evidence. Arbitration: The Last Stand Basic flow of arbitration The final step that a merchant may encounter in the chargeback process is called arbitration. The merchant is also on the hook for the hefty fees from the card association. The issuing bank is responsible for the fees associated with arbitration. Note: The situation where a card association rules in favor of a merchant during arbitration is incredibly rare. Post Chargeback For merchants who have lost their chargeback dispute during any of the three cycles, or decided not to contest the chargeback, they are out the money from the sale, the product sold, plus any fees incurred.

Let's Talk. We can help with your chargeback questions. Note: Turn on Javascript. Share this post. Latest Blog Posts. How to brace your ecommerce business for post-holiday returns November 9, The data knows November 3, Article Tags. Sometimes your credit card issuer will simply issue you an account credit for the amount you dispute. This happens most often with small purchases, where the overhead of contacting the merchant and investigating the chargeback would be far greater than the amount of the purchase.

Most often, after collecting your reason for disputing the charge and supporting documentation, your bank will submit your chargeback to the merchant. Your bank will provide the transaction information, your stated reason for requesting the chargeback and any supporting information that documents your claim. If the chargeback is either accepted or not disputed, your bank will notify you that your billing dispute is closed and will provide an account credit to offset the disputed charge.

However, if the merchant responds that the charge is valid and provides documentation supporting their claim, your bank will evaluate the information that the merchant provided and determine whether to issue you a credit for the disputed charge. Once the bank makes its decision, it will provide that to you in writing along with an account credit if your dispute is successful. Often, the easiest way to resolve a billing dispute is directly with the merchant in question.

This avenue will likely get you either a refund or a replacement product faster than filing a chargeback would. Likewise, if you believe that a credit card has been billed in error, contacting the merchant can often get a simple mistake resolved within a few days.

Most banks will ask if you contacted the merchant directly prior to requesting a chargeback. Second, your window to submit a chargeback is time-limited, so you should not delay in submitting a legitimate dispute. As an example, for most purchases using Mastercard, chargebacks must be submitted within days of the purchase. The exact number of days you have to dispute a charge varies based on a number of factors, including what the charge is for, the card association and bank policies.

Check with your credit card issuer. Because chargebacks are not guaranteed, it is important to not use your chargeback ability as a replacement for monitoring your accounts for fraudulent use.

If your credit card is lost or stolen, it is still important to report that immediately to your bank. Finally, chargebacks are intended to resolve legitimate billing errors. In the last decade, with the rise in online shopping merchants have seen a corresponding increase in chargeback abuse.

Fraudulent use of chargebacks also could have legal implications. The ability to resolve billing disputes by issuing chargebacks is one of the best reasons to use a credit card for your daily purchases. Knowing how and when to use chargebacks is one of the ways in which you can become a more savvy consumer and user of credit cards and financial products.

Aaron is an avid global traveler and miles and points enthusiast. In addition to writing for Forbes. She's a credit card enthusiast and digital nomad who has leveraged credit cards to travel around the world for next to nothing, often in style. Prior to working for Forbes, she contributed to other leading publications in the credit cards and rewards space. She would like to visit every country and try as many different local culinary specialties as possible.

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