Why Should Small Businesses Care About Chargeback Automation?

It might be hard to believe, but chargebacks are good for business. Because even with the best of efforts, fraud occurs and errors happen. Cardholders need to feel protected from these issues. If they didn't, no one would ever use their credit cards. And that would definitely hurt revenues.   

But ask any small business owner, and almost everyone would say that chargebacks are certainly not good for business. A single chargeback can be disastrous for an outfit with razor-thin margins. And with less financial muscle to draw upon, local merchants can't use the expensive defenses large enterprises have to protect themselves.  

Small and medium businesses (SMBs) need solutions that fit their scope and scale. That's why chargeback automation is of interest. Let’s delve into automated chargeback tools and how they may help merchants handle the disproportionate impact of chargebacks.  

Understanding Chargebacks and Their Impact on Small Businesses 

Why exactly are chargebacks so disastrous for SMBs? There are a couple of reasons:  

First, a single chargeback represents a significant portion of revenue for a small business. All sales funds reverse back to the customer. And the customer acquisition costs you spent to make the initial sale are gone. Plus, there are chargeback fees to pay. A smaller outfit needs more financial resources to take on these losses. If you work with tight margins, one chargeback can cause grave instability.  

Second, chargeback (and fraud) defenses require a lot of resources. Large organizations devote entire teams of employees to limit disputes. But most small business owners are already stretched thin. You wear all the hats: as the accountant, customer service rep, and salesperson. You cannot stall regular business activity to dispute a chargeback.  

Third, a single chargeback can lead to severe reputation damage. Now, a large enterprise with millions of customers can stand to lose a client or two. But for SMBs, a drawn-out dispute harms a key relationship with a priority client. That client represents a significant lifetime sales value. More importantly, a small business operates within a local community. Bad word of mouth can heavily damage future sales.   

And of note, the reputation issue also extends to card issuers. Merchants that exceed the chargeback threshold earn a "high-risk" label. That reputation, in turn, limits your access to credit. You could even lose your merchant account, which might demand the closure of your business.      

In summary, for SMBs, a simple chargeback can quickly become an overwhelming crisis.    

The Challenge of Manual Chargeback Management 

Most small business owners want to make the best of a challenging situation. Some form of defense is better than nothing. So many do what they can and proceed with manual strategies. Unfortunately, manual efforts introduce several problems:  

• Wasted effort: Chargebacks are time-consuming. There is a lot of evidence to gather and paperwork to file. That diverts your energies away from more crucial business activities.  
• Increased errors: Chargeback defenses are complex. Manual efforts increase the chances of mistakes. 
• Lack of scale: Chargebacks increase in line with sales volume. But you, as a human, have natural limits. SMBs often struggle to manage their chargebacks as the business grows.  
• Lack of Insight: Chargeback requirements change as issuers attempt to address the changing fraud economy. But manual efforts are disconnected, with each business owner siloed by themselves. That results in less-than-effective chargeback defenses.    

As a result, chargebacks feel like a no-win situation. The very actions you can take only make the issue worse. It is a Catch22 that snares a lot of merchants.  

The Advantages of Chargeback Automation for Small Businesses 

What can a merchant do in such a situation? A possible solution exists chargeback automation. Chargeback automation refers to software tools that employ rule-based responses. When a customer files a dispute, predefined actions with high odds of success are initiated. It all occurs automatically, without any effort by you, the merchant.  

Such automation offers several benefits that can help small business owners escape from the no-win situation of chargebacks: 

• Time savings: Why work when you don’t have to? Chargeback automation can handle many of the tasks related to the chargeback cycle (collecting evidence, detecting fraud, and ensuring compliance). That frees you up to focus on core business activities.  
• Fewer errors: Why do what a machine can do better? Automated tools, by nature, work with unending and exact execution. A standard set of responses is simple and consistent. That decreases the likelihood of costly makes. 
• Ease of access: Why not grab the “low-hanging fruit” of success? Chargeback automation tools are effective yet low-cost. Such minimal upfront expense offers an accessible and rapid return on investment (a factor crucial for SMBs who have limited financial resources).     
• Analysis insights: Why not improve your defenses? Automated tools are data-collecting machines. Performance metrics show what is working, what is failing, and what you can fix. That keeps you up-to-date and proactive toward new chargeback trends.  
• Low-cost scaling: Why not prepare for growth? A digital tool is replicable—it can handle more work when needed. That makes it easy for you to manage a greater volume of chargebacks as your business grows.   

How Chargeback Automation Works 

How exactly does chargeback automation operate in your business? Most dispute software operates within the following stages:  

1. Identify: First, the solution will label the chargeback. You need to know what type of dispute you are dealing with before you can take the right action. To that end, your solution will search your transaction data for “chargeback indicators”. These indicators confirm that the offered reason code is correct. For example, if a client cites fraud as the dispute reason, a series of rapid payment attempts made in a foreign country help confirm the claim.  

2. Collect: Once defined, your automated solution assembles helpful supporting data. That includes details about the transaction, the customer, and previous purchase histories.      

3. Decide: Next, your chargeback tool compares the transaction data with the given chargeback info. Upon analysis, predefined rules initiate the most appropriate actions. For example, a fraud case can start up automated damage control strategies. A false customer claim could result in evidence compilation.   

4. Alert: The chargeback solution then talks with all relevant parties. Template messages can send responses to issuers or acquirers. You might receive a status update. In complex cases, the tool will assign the dispute to you for more human-oriented tasks.  With Chargeflow Alerts, you can prevent 70% of incoming chargebacks. This is accomplished by harnessing the power of real-time dispute alerts to proactively prevent chargebacks before they happen.

5. Prevent: After the case is resolved, some automated tools assess their own actions. Chargeback management tools use artificial intelligence and machine learning. These cognitive systems can adapt from learned info. Such insights highlight hidden problems or areas that need improvement within your business. You can use those suggestions to fix the root causes.  

6. Report: Lastly, your chargeback tool will generate reports. It delivers trend assessment and performance metrics to you for measurement.  

Implementing Chargeback Automation: Considerations for Small Businesses 

How do you choose the right automated tool? There are numerous options on the market. Use the following criteria to help select the right tool for your small business: 

• Integrate: Don’t waste time on complex software. Opt for a chargeback tool that integrates into all of your current systems.  
• Customize: Select an automation tool that adapts to your company. Clothing stores face different chargeback challenges than digital subscription services. There is a reason why Chargeflow ensures that the chosen solution aligns with the unique needs of your business. 
• Ease of use: Choose a tool that you can manage. You are most likely the entirety of your chargeback defense team. A non-user-friendly interface will simply cause more headaches.  
• Performance (ROI): You need something that works—without breaking the bank. Balance the costs (integration, monthly fees, etc) with the performance (fraud prevention savings, fewer disputes, etc) you need. And remember, expensive is not always better.  

• Customer support: Choose a chargeback management tool that offers accessible tech support. Mistakes will happen. Expert help will be crucial when things break down (as they do now and then).  

Conclusion 

Small businesses feel a disproportionate impact from chargebacks. Compared to large enterprises, tight-margin outfits don’t have the resources to limit the high cost of a dispute. And to add insult to injury, individual manual efforts often exacerbate the problem rather than help.  

Chargeback automation provides a possible answer to such a difficult situation. Low-cost yet effective, automated tools provide the rapid return on investment a small business owner needs. As the digital marketplace evolves, adopting specialized automation tools for chargeback disputes becomes crucial for small businesses aiming to secure their transactions and growth. 

Are you ready to integrate a chargeback automation tool into your business? Contact Chargeflow to speak to one of our representatives.