How to Handle Disputes and Chargebacks on Payments

Running a business comes with its share of challenges, and seeing a customer dispute a payment can be a stressful one. A chargeback, which is a transaction reversal initiated by a customer's bank, can feel like a sudden loss of hard-earned revenue. But it doesn't have to be a cause for panic.

At Teya, we understand that every transaction matters to our members. We're here to make business smoother, and that includes helping you navigate the complexities of payment disputes. While chargebacks are a part of accepting card payments, they are manageable. With the right knowledge and a clear process, you can handle disputes effectively and even take steps to prevent them from happening in the first place.

This guide will walk you through exactly how to handle disputes and chargebacks on card machine payments. We’ll give you a clear, step-by-step plan for when a dispute occurs, and share best practices to help protect your business in the future.

What to do when a customer disputes a payment: a guide to chargebacks

When you receive a notification about a payment dispute, your first instinct might be frustration or worry. That's completely normal. The key is to channel that energy into a calm, methodical response. The chargeback process operates on strict deadlines, so acting quickly and efficiently is crucial. Here is what you need to do.

Step one: Review the dispute carefully

The first thing you’ll get is a notification from us, your payment processor. This document contains all the initial details about the dispute. Take a moment to read it thoroughly. You need to understand:

• The transaction details: Check the date, time, and amount of the transaction in question.

• The reason code: Every chargeback comes with a reason code. This code explains why the customer is disputing the charge. It could be anything from a claim of fraud to a product not being as described. Understanding the reason is the first step in building your response.

Step two: Gather your evidence

Once you understand the reason for the dispute, it's time to collect all the evidence you have to prove the transaction was legitimate. The more detailed your records are, the stronger your case will be. Think like a detective and gather everything related to the sale. This could include:

• Receipts: A signed receipt or a record of a Chip and PIN or contactless transaction is powerful evidence that the cardholder was present.

• Proof of delivery: If you shipped a product, find the tracking number and delivery confirmation showing the item arrived at the customer's address.

• Customer communication: Look for any emails, messages, or notes from conversations with the customer. This can show they were happy with the service or acknowledged the purchase.

• Terms and conditions: If the customer agreed to your terms of service, refund policy, or cancellation policy, have a copy of it ready.

• Photos or videos: For services or high-value items, photographic evidence of the completed work or the item's condition before shipping can be invaluable.

Step three: Consider contacting the customer

Sometimes, a chargeback is simply a misunderstanding. A customer might not recognise your business name on their bank statement, or they may have forgotten about the purchase. If you feel it's appropriate, a polite phone call or email can sometimes resolve the issue quickly.

You could say something like, "Hello, I'm calling from [Your Business Name]. We received a notification about a disputed payment from [Date], and I wanted to check in to see if we could help clear up any confusion." This helpful and non-confrontational approach can sometimes lead to the customer withdrawing the dispute, saving everyone time and effort.

Step four: Submit your response

With your evidence gathered, you need to build a compelling case. Write a clear and concise rebuttal letter that summarises the situation and explains why the charge is valid. Attach all your supporting documents. We provide a straightforward process for you to submit this information. Make sure your response is factual, professional, and directly addresses the reason code provided in the dispute notification.

Step five: Await the decision

After you submit your evidence, it goes to the customer's card-issuing bank for review. They will look at the information provided by both you and the customer to make a final decision. This process can take several weeks. If the decision is in your favour, the funds will be returned to your account. If not, the funds will remain with the customer. Regardless of the outcome, view it as a learning opportunity to strengthen your processes for the future.

How to manage and prevent chargebacks for your small business

While knowing how to respond to a chargeback is essential, the best strategy is prevention. By putting some simple best practices in place, you can significantly reduce the likelihood of disputes and protect your business's revenue and reputation.

Provide excellent customer service

Many disputes begin not with fraud, but with customer dissatisfaction. A customer who feels ignored or unheard is more likely to go to their bank than to try and resolve the issue with you.

• Be accessible: Make sure your contact information is easy to find on your website, receipts, and social media.

• Respond quickly: Aim to reply to customer questions and complaints promptly and professionally.

• Listen and empathise: Even if you can't give the customer exactly what they want, listening to their concerns and showing you care can de-escalate a situation.

Maintain clear and fair policies

Clarity is your best defence against misunderstandings. Your customers should know exactly what to expect when they do business with you.

• Have a clear return and refund policy: Make your policy easy to find and simple to understand. A straightforward and fair refund process can encourage a customer to come to you directly instead of initiating a chargeback.

• Display your terms of service: For service-based businesses or those with recurring payments, make sure customers actively agree to your terms before they make a purchase.

Optimise your transaction process

Small details at the point of sale can make a big difference in preventing future disputes.

• Use a recognisable billing descriptor: The name that appears on your customer's bank statement should be easily recognisable as your business. A confusing or generic descriptor is a common cause of "unrecognised transaction" chargebacks. We can help you set this up correctly.

• Provide detailed receipts: Your receipts, whether paper or digital, should clearly list what was purchased, the price, and your business name and contact information.

Keep meticulous records

As we covered in the response process, good records are your best defence in a dispute. Get into the habit of keeping everything related to a transaction for at least 18 months. This includes receipts, invoices, delivery confirmations, and customer communications. A well-organised filing system can save you a lot of stress down the line.

Embrace secure payment technology

Using modern payment technology is one of the most effective ways to prevent fraudulent chargebacks.

• Use Chip and PIN and contactless: These technologies are far more secure than magnetic stripe payments. They provide strong evidence that the cardholder was physically present during the transaction, making it very difficult for them to claim it was fraudulent.

• Stay up to date: We make sure your card machine is equipped with the latest security features to protect both you and your customers.

By being proactive, you can create a business environment where disputes are rare. This not only protects your bottom line but also helps build trust and loyalty with your community of members.

Understanding chargebacks: how to protect your business from disputed payments

Now that you know the practical steps for handling and preventing disputes, it’s helpful to understand the chargeback system more deeply. Knowing the 'why' behind the process can make the 'how' even more effective.

A chargeback is a consumer protection tool. It was designed to give cardholders confidence when making purchases, protecting them from fraud or dishonest businesses. When a customer disputes a charge with their bank, the bank immediately reverses the payment from your account and starts an investigation.

There are several common reasons why a customer might initiate a chargeback:

• Fraudulent transaction: The cardholder claims their card was lost, stolen, or used without their permission.

• Unrecognised transaction: The cardholder doesn’t recognise your business name on their statement.

• Product not received: The customer paid for an item but claims it never arrived.

• Product not as described: The item or service received was significantly different from what was promised.

• Technical issue: The customer was accidentally billed twice or charged the wrong amount.

• Cancelled recurring payment: The customer was charged for a subscription they believe they had cancelled.

The process involves four main parties: the cardholder (your customer), the issuing bank (the customer's bank), the acquiring bank (our bank), and you, the business owner. It’s a formal process with established rules set by the card networks like Visa and Mastercard.

The true cost of a chargeback goes beyond the lost sale amount. You may also face a non-refundable chargeback fee from your payment processor for each dispute, regardless of the outcome. Furthermore, a high rate of chargebacks can damage your reputation with payment processors and, in a worst-case scenario, could risk your ability to accept card payments at all.

This is why prevention is so important. Every proactive step you take—from setting a clear billing descriptor to keeping detailed receipts and offering great customer service—is an investment in protecting your business. It fortifies your operations against potential disputes and helps you build a stronger, more resilient business for the future, We're always here to help you.