How Restaurants Can Prevent and Manage Chargebacks

How Restaurants Can Prevent and Manage Chargebacks
Restaurants are becoming more multi hyphenate in 2023, making purchasing more seamless and convenient for customers. With the rise in convenience that curbside pickup, and order ahead have brought customers, they have also, increased disputes.
by Deborah Findling Dec 10, 2022 — 3 min read
How Restaurants Can Prevent and Manage Chargebacks

Many restaurants and coffee shops moved business online in 2020, making purchasing more seamless and convenient for customers. With the rise in convenience that delivery and click-and-collect offers, it has also increased payment disputes for business owners. The increase in disputes has been attributed to a range of causes from confusion around delivery time to fraudulent card orders.

While some chargebacks are tied to criminal fraud, many might not be. ‘Friendly fraud’ comes from customers who make a purchase online and claim a chargeback with their credit or debit card company rather than requesting a refund from the merchant. In these cases, customers who may not recognise a charge or feel frustrated with a slow delivery, for instance, may simply dispute the charge rather than communicate with the business.

What is a chargeback?

A credit or debit card chargeback is a payment dispute where money is returned to a customer who disputes a credit or debit card transaction successfully. Chargebacks can be categorised as fraudulent or non-fraudulent. Fraudulent transactions are cases in which a customer’s card was used without their knowledge or authorisation, whereas non-fraudulent transactions can occur if something is wrong with the order, a delivery was cancelled, or the order was not received at all.

How to prevent credit and debit card disputes

Whether your business has seen fraudulent or non-fraudulent related chargebacks, there are several best practices for accepting card payments to help prevent disputes before they happen.

Preventing fraudulent transactions

Keep track of customers: If you use a service to aggregate customer information, you might have an easier time spotting an unusual order. This might include verifying if an address is real, if it is a typical email address, or if the customer has ordered from you before.
Require a signature on delivery: Requiring a signature adds an extra layer of confirmation that the correct customer receives their order.
Keep an eye out for abnormal orders: If you see orders coming in with a lot of high-price items, many duplicate items, or a significantly larger order than is typical for your business, keep an extra eye out for a potentially fraudulent transaction. If you use Square Dashboard, you can see risk evaluations under the Transactions tab for transactions that could be of moderate or high risk.

Preventing non-fraudulent transactions

There are a few ways to protect your restaurant from common non-fraudulent chargebacks.

Include photos and descriptions: Show examples of the food or drinks you’re selling, along with descriptions. This will help customers get a sense of what they are ordering so their expectations are more likely to be met when their delivery arrives.

Provide a receipt: This is a record for both you and your customer. In the event of a dispute, a receipt can help challenge the dispute with a bank.

Customer service is key: Chargebacks can occur if customers feel that they have no way to reach a restaurant. Perhaps their food arrived late or did not meet their expectations. If customers have a difficult time reaching someone to help them, they may choose to deny the charge instead, due to how quickly and conveniently they can do so.

How to manage credit and debit card disputes

If you own a restaurant, coffee shop, bakery, or bar and have already seen an increase in disputes, here are a few best practices for mitigating them. If you experience a chargeback, Square can help you through the process.

Managing fraudulent transactions

There are several details that may help protect your business in the case of a fraudulent chargeback. Here are some things to consider keeping track of if you should need to dispute a chargeback.

Make your business recognisable: Customise your business name so that it shows up on receipts and in your customer’s bank statement. If you are using Square, you can customise the appearance of your customer’s receipts in your Square Dashboard. By adding identifiers like your logo or business name, it will make it easier for customers to remember where they made a purchase.

Make it easy for customers to contact you: Add your phone number, address, website, and social media pages to receipts so it is easy for customers to follow up with you directly if something goes wrong.

Itemise receipts: By itemising receipts, sellers can see the list of items they purchased rather than a large purchase amount with no specifics from their order.

Know your customer: Customer information like email, name, and address can be helpful in challenging a fraudulent chargeback.

Managing non-fraudulent transactions: Collecting the following information can help you protect your restaurant from non-fraudulent transaction disputes.

Takeaway orders:

Delivery orders:

For restaurants that have moved their businesses online, experiencing an increase in chargebacks is costly due to loss in revenue and the time it takes to investigate why the chargeback was made in the first place. By communicating with customers and keeping track of orders, you can help prevent and mitigate chargebacks.

This article is for educational purposes and does not constitute legal, financial, or tax advice. For specific advice applicable to your business, please contact a professional.

Deborah Findling
Deborah Findling is an editor at Square, where she writes about investment, finance, accounting and other existing and emerging payment methods and technologies.


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