Disputes with customers are never fun. This is especially true when it comes to chargebacks. Below, we’ll walk through the basics of the chargebacks process, what usually causes them and the steps you can take to prevent chargebacks from happening.
In this article:
- What is a chargeback?
- Common causes of chargebacks
- How Square handles payment disputes
- How to prevent chargebacks?
- Chargeback FAQ
- Chargeback reason codes
What is a chargeback?
A chargeback happens when a customer disputes a charge from your business and asks the card issuer to reverse it. Card chargebacks protect consumers from unauthorised transactions but can be a major headache for businesses.
When a chargeback occurs, the disputed funds are held from the business until the card issuer resolves the issue. This process can be complicated and time-consuming, often involving significant paperwork and documentation. (Unless you work with a payment service provider like Square—more on that later.)
The chargeback process explained
The chargeback process can differ between payment processors and usually takes 120 days to resolve. At Square, we use machine-learning models to predict and stop many fraudulent transactions before they happen. We also inform you of your chargeback status via convenient in-app alerts in your Square Dashboard.
Step 1: A purchase occurs
All chargebacks start with a customer purchasing in person, in-app, or online.
Step 2: Customer initiates the chargeback
After reviewing their credit card statement, customers may notice a charge they didn’t authorise and contact their credit/debit card company (the issuing bank) to investigate the charge.
Step 3: Issuing bank reaches out to the merchant’s bank
The customer’s bank contacts the merchant’s bank, asking them to provide proof that the customer purchased goods or services. This can include invoices, receipts, proof of delivery, or other evidence that the purchase was valid.
Step 4: Decision time
The cardholder’s bank reviews the proof provided and decides whether the purchase was valid.
Step 5: Customer is informed
The customer is informed of the bank’s decision. The customer must pay for the goods if the purchase was deemed valid. If invalid, the cardholder receives a refund, or the dispute can move to arbitration.
Common causes of chargebacks
Fraudulent transactions
Fraudulent transactions can lead to chargebacks if someone sees a charge they didn’t authorise. To protect your business, it’s a good idea to have an electronic point of sale (EPOS) that accepts chip and PIN cards and contactless payments like Apple Pay. Irish retailers have been able to enjoy the security advantages of chip and PIN since spring 2005. Small businesses getting off the ground should also have a chip and PIN reader as part of their business essentials.
Shipping problems
If a customer never receives an item, it could result in a chargeback. Ensure you have a streamlined delivery system with tracking numbers.
Technical problems
Website issues or user errors during checkout can result in unintended charges. Integrate a reputable POS and e-commerce system with an easy-to-navigate checkout process.
Credit not processed
Customers may issue a chargeback if they don’t see a refund in their bank account promptly after a return. Have a reliable system for handling returns and credits, and clearly state your return policy.
Problems with items
Chargebacks can occur if customers are dissatisfied with a product or service. Ensure high-quality standards and clearly describe your items.
Unrecognisable business name
Billing clients with an unrecognisable business name can lead to chargebacks. Ensure your business name is clear and consistent.
How Square handles payment disputes
Square handles disputes differently than other processors, making the process as simple as possible for you.
Step 1: Notification
We notify you of the dispute.
Step 2: Decision
You decide whether to accept or challenge the dispute by sending us the necessary documentation.
Step 3: Resolution
The bank determines whether the purchase was legitimate. If in your favour, the transaction stands. If it is in the customer’s favour, you will need to pay the fee.
How to prevent chargebacks?
While there’s no guaranteed way to prevent chargebacks, you can take steps to minimise them:
- Keep proof of all credit and debit card orders.
- Have a clear return policy.
- Use a recognisable business name on card statements.
- Require a signature upon delivery.
- Train employees on best practices for transactions.
- Use a payment gateway that verifies the AVS on file for the card.
- Accurately describe items.
- Respond promptly to customer service issues.
If you receive a chargeback, respond promptly to your bank or payment processor.
Chargeback FAQ
What’s the difference between chargebacks and refunds?
The merchant initiates a refund to repay a dissatisfied customer. A customer initiates a chargeback for a fraudulent transaction, reversing the transaction. In a chargeback, the transaction is reversed, and the merchant’s bank returns funds to the customer.
What is a chargeback fee?
A chargeback fee is an additional fee your credit card processing company may charge if you are found at fault for a chargeback. Many payment processing companies may entirely disallow you from accepting credit cards if you have an unusual amount of chargebacks on your account.
Is there a chargeback time limit?
Most acquiring banks set a timeframe for initiating a chargeback, usually 120 days from the issue date.
Are debit card chargebacks handled the same way?
Yes, debit card chargebacks are handled similarly to credit card chargebacks in Ireland.
How do I write a chargeback rebuttal letter?
Provide evidence such as receipts, proof of delivery, and proof of the item’s acceptability. Square can assist you in clearing the dispute and fighting against fraudulent claims.
If you believe a chargeback to be fraudulent, you will need to provide evidence that proves it. Proof you may wish to put forward for your case includes:
- Receipts or invoices
- Proof of delivery confirmation, particularly with signatures
- Proof that the item was acceptable (the customer used the item, didn’t complain upon delivery, etc.)
- The correct recording and delivery of the customer’s CVC or AVS
For more information on how to protect your business from friendly fraud and other types of fraud, read our article on security terms you should know.
Chargeback reason codes
For Visa
For Mastercards
For American Express
Chargeback Reason Codes List for Visa
| Chargeback Code | Chargeback Reason |
|---|---|
| 10.1 | EMV Liability Shift Counterfeit Fraud |
| 10.2 | EMV Liability Shift Non-Counterfeit Fraud |
| 10.3 | Other Fraud — Card Present Environment |
| 10.4 | Other Fraud — Card Absent Environment |
| 10.5 | Visa Fraud Monitoring Program |
| 11.1 | Card Recovery Bulletin |
| 11.2 | Declined Authorization |
| 11.3 | No Authorization |
| 12.1 | Late Presentment |
| 12.2 | Incorrect Transaction Code |
| 12.3 | Incorrect Currency |
| 12.4 | Incorrect Account Number |
| 12.5 | Incorrect Amount |
| 12.6 | Duplicate Processing/Paid by Other Means |
| 12.7 | Invalid Data |
| 13.1 | Merchandise/Services Not Received |
| 13.2 | Cancelled Recurring |
| 13.3 | Not as Described or Defective Merchandise/Services |
| 13.4 | Counterfeit Merchandise |
| 13.5 | Misrepresentation |
| 13.6 | Credit Not Processed |
| 13.7 | Cancelled Merchandise/Services |
| 13.8 | Original Credit Transaction Not Accepted |
| 13.9 | Non-Receipt of Cash or Load Transaction Value |
Detailed chargeback reason codes list for Mastercard
Mastercard chargeback codes fall into four categories:
- Authorization
- Cardholder disputes
- Fraud
- Point-of-interaction error
Chargeback Reason Codes List for Mastercard
| Chargeback Code | Chargeback Reason |
|---|---|
| 4801 | Requested Transaction Data Not Received |
| 4802 | Requested / Required Information Illegible or Missing |
| 4807 | Warning Bulletin File |
| 4808 | Requested / Required Authorization Not Obtained |
| 4812 | Account Number Not on File |
| 4831 | Transaction Amount Differs |
| 4834 | Duplicate Processing |
| 4835 | Card Not Valid or Expired |
| 4837 | No Cardholder Authorization |
| 4840 | Fraudulent Processing of Transaction |
| 4841 | Cancelled Recurring Transaction |
| 4842 | Late Presentment |
| 4846 | Correct Transaction Currency Code Not Provided |
| 4847 | Requested / Required Authorization Not Obtained and Fraudulent Transaction |
| 4849 | Questionable Merchant Activity |
| 4850 | Credit Posted as Purchase |
| 4853 | Cardholder Dispute – Defective / Not as Described |
| 4854 | Cardholder Dispute – Not Elsewhere Classified (U.S. Region Only) |
| 4855 | Non-receipt of Merchandise |
| 4857 | Card-Activated Telephone Transaction |
| 4859 | Services Not Rendered |
| 4860 | Credit Not Processed |
| 4862 | Counterfeit Transaction Magnetic Stripe POS Fraud |
| 4863 | Cardholder Does Not Recognize — Potential Fraud |
| 4870 | Chip Liability Shift |
| 4871 | Chip / PIN Liability Shift |
Chargeback Reason Codes List for American Express
| Chargeback Code | Authorization Errors |
|---|---|
| A01 | Charge Amount Exceeds Authorization Amount |
| A02 | No Valid Authorization |
| A08 | Authorization Approval Expired |
| Chargeback Code | Type: Fraud |
| F10* | Missing Imprint |
| F14* | Missing Signature |
| F22 | Expired or Not Yet Valid Card |
| F24* | No Card Member Authorization |
| F29 | Card Not Present |
| Chargeback Code | Type: Card Member Dispute |
| C02 | Credit (or Partial Credit) Not Processed |
| C04 | Goods/Services Returned or Refused |
| C05 | Goods/Services Cancelled |
| C08 | Goods/Services Not Received |
| C14 | Paid by Other Means |
| C18 | “No Show” or Card Deposit Cancelled |
| C28 | Cancelled Recurring Billing |
| C31 | Goods/Services Not as Described |
| C32 | Goods/Services Damaged or Defective |
| M10 | Vehicle Rental - Capital Damages |
| M49 | Vehicle Rental - Theft or Loss of Use |
| Chargeback Code | Type: Processing Error |
| P01 | Unassigned Card Number |
| P03 | Credit Processed as Charge |
| P04 | Charge Processed as Credit |
| P05 | Incorrect Charge Amount |
| P07 | Late Submission |
| P08 | Duplicate Charge |
| P22 | Nonmatching Card Number |
| P23 | Currency Discrepancy |
| Chargeback Code | Type: Inquiry Related Chargeback |
| R03* | Insufficient Reply |
| R13* | No Reply |
| M01* | Chargeback Authorization |
| Code | Type: Chargeback Programs |
| FR2 | Fraud Full Recourse Program |
| FR4 | Immediate Chargeback Program |
| FR6 | Partial Immediate Chargeback Program |
*These American Express chargeback cordes require an inquiry first.