Wondering If You Need A Chargeback Management Company? Read This

When managing a chargeback, e-commerce merchants often feel transfixed between the DIY approach and outsourcing the task to a chargeback management company.

Dealing with a credit or debit card chargeback is significant pain in the butt for e-commerce businesses. 

If you are reading this article, you already know the challenges of handling chargebacks. They cost money, eat up your time and resources. 

It would’ve been quite convenient to rank chargebacks as one of those costs of doing business. Unfortunately, each chargeback does not cost the value of the transaction. You spend more money, win or lose. Instead of focusing on hitting your revenue metrics and blazing new business trails, chargebacks keep you in the vicious cycle of fighting to maintain the status quo.

Enters the question: Should you keep mitigating the challenges in-house or get external help? 

In this article, we shall look at four crucial checklists that can help you make an informed decision on how to manage chargebacks and disputes.

#1: Start with your chargeback win rate

Research shows a threefold increase in the rate of innovation in the payment industry in the past five years. Acquirers and regulators are continually shifting policy gears to stay at per with the unprecedented transformation in digital payments, resulting in a complication in how the various parties count, dispute, and determine chargebacks. Unfortunately, the odds stack against merchants because banks often side with the consumer in a chargeback incident.

If you’ve been in business for a while, the first metric for deciding whether or not to employ a chargeback management company is to review your chargeback win rate. As we stated in another article, the general formula for calculating the chargebacks win rate is to divide the total chargebacks you received in a given month by the number of chargebacks you’ve won. That will provide you with a fair idea of your chargeback win rate. But, suppose you just opened your e-commerce shop and haven’t received any chargebacks yet. In that case, you should focus on your chargeback win/loss probability. That is a measure of the likelihood of your winning a chargeback. Here, you look at indices such as the compelling evidence in your representment, your business line, and other elements that we explained in detail in this article. 

If your chargeback win rate is not at least 50%, it’ll be wise to get a chargeback management company. By the way, one survey found that fewer than one-quarter of merchants win the majority of their disputes.

#2: Can you track the cause of each chargeback you get?

As we highlighted above, the fragmentation between financial institutions and merchants causes a significant disruption in the chargeback management process. In many instances, the information an issuer gets from a consumer alters as it passes from the issuer to the card network, then to the acquirer, perhaps to another merchant service provider or ISO, and eventually to the vendor.

That disconnect makes it hard for merchants to trace the actual reason code for each chargeback. The outcome, as you would’ve guessed, is often misrepresentation and incidental loss of the case. 

The best way to fight chargebacks is to prevent them from happening in the first place. But to prevent them, you must know what caused each chargeback. Without clarity on the root causes of the chargebacks you get, you can’t stop the cycle. Again, many issues can cause a chargeback. These are not limited to order fulfillment errors, call center errors, lousy products, inaccurate product descriptions, low marketing strategies and practices, horrible traffic, purchases by unreliable sources, and so on.

You can try to pinpoint the chargeback reason code manually, but that’s a heck of a job when you have several other tasks requiring attention. So the smartest thing to do is work with a specialist agency with the technology and capacity to pull from several data points and quickly run a comprehensive, reliable crisis analysis at any given point in time. There are many winnable chargebacks, but if you can’t trace the causes of those chargebacks, how can you make a solid representment?

#3: How promptly do you identify and fight chargebacks?

If you are like most merchants who do not have software tools to accurately track and manage your e-commerce data, you will likely not find out about a chargeback until after the deadline elapsed. That can be worse at peak periods or holiday seasons when there are some lax in operations for many businesses. 

As you already know, when a chargeback is ruled on, there’s no do-over. The only alternative becomes an arbitration, which attracts a hefty fee of $400 for each chargeback. In a nutshell, not fighting chargebacks on time will only cause the situation to deteriorate further.

25 to 35% of chargebacks stem from internal issues that you can prevent. But most merchants don’t have the tools and resources to track and address the problems adequately. With a chargeback representment company such as Chargeflow, you can quickly integrate your merchant account with our industry-first chargeback and disputes tracking software. This helps you to receive a just-in-time alert and email whenever a customer disputes a transaction. Our system will equally address those disputes on your behalf; you don’t need to lift a finger as we automated the entire process for you. 

#4: What is your month on month chargeback rate?

The fourth thing you must do before deciding whether to outsource your chargeback management process is to audit your month-on-month chargeback rate. Ideally, you must keep a pulse of this data as if your business depends on it. And if you get up to 10-20 chargebacks every month, then you urgently need a chargeback management company. Your company is at risk.

Many times, merchants don’t get professional chargeback representment until that warning letter from their processor hits their inbox. And this often results in a termination of their merchant accounts when they couldn’t act swiftly to remedy the situation by lowering their chargeback rate.

In most instances, when an acquirer terminates a merchant’s payment processing account, that can be the nail in the coffin for the business. Getting another merchant account can be incredibly challenging as providers will see the business as an operational risk they must avoid. And if you manage to find an acquirer that accommodates high-risk entities, they usually charge a premium for your merchant account, which makes no business sense at all.

As a smart business owner, you should anticipate these risks. You should be proactive and outsource this aspect of your operation to a company with tools and proven knowledge of mitigating chargebacks and disputes. And ensure your merchant account never reaches the high-risk chargeback threshold. Nevertheless, even if you are at that red alert point in your business, here is what you should do: speak to Chargeflow about your situation, and our experts will guide you on how to skillfully navigate your way to safety. We shall craft requisite crisis prevention alert tools to notify you of any impending chargeback and help you to minimize your chargeback rate, helping your business get a needed breath of fresh air to deal with other essential issues. Think about it. You have experts to handle your accounting and tax filing. Why does your chargeback management process have to be any different --when your sustainability depends on it?

No one sets up a business hoping to have it destroyed in the future

There are so many benefits in using a chargeback and dispute management software such as Chargeback. Not only have we created the first-of-its-kind tool to help e-commerce business owners put the threat of chargebacks behind them, but we are also entrepreneurs with years of experience in building ventures. We have built other technology tools that serve high-growth businesses worldwide. So we understand how challenging entrepreneurship can be. We also know what people want from technology tools they onboard.

And when it comes to managing chargebacks, you want a product that saves you more money, lowers your operating costs, gives you insight and reliable data that can help you lead your industry and relate better with your stakeholders. Essentially, you want a chargeback and dispute management system that can help you build a real business, not another knock off. And Chargeflow gives you all these and many more results. Don’t take our word for it; start your free trial with ten complimentary chargeback management slots. Sign up here.