How Restaurants Can Prevent and Manage Chargebacks

How restaurants can prevent and manage chargeback with a few easy tips

Many restaurants have moved business online in 2020, 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.

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.

Many restaurants and coffee shops have moved business online in 2020, making purchasing more seamless and convenient for customers. In fact, 3 in 4 restaurants plan on offering contactless ordering and payment options, with 61% utilizing contactless payments on premise. With the rise in convenience that curbside pickup, order ahead, and delivery options have brought customers, they have also, in turn, increased disputes for business owners. The increase in disputes has been attributed to a range of causes from confusion around delivery time to fraudulent credit card orders that have taken a toll on small businesses.

While some chargebacks are tied to criminal fraud, many might not be. Friendly fraud refers to customers who make a purchase online and claim a chargeback with their credit card company rather than requesting a refund from the merchant. In these cases, customers who may not recognize a charge, or feel frustrated with a slow delivery, 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 categorized as fraudulent or non-fraudulent. Fraudulent transactions are cases in which a customer’s card was used without their knowledge or authorization, 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 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 they don’t have missed expectations 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.

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 fight a chargeback.

  • Make your business recognizable: Customize your business name so that it shows up on receipts and in your customer’s bank statement. If you are using Square, you can customize 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.

  • Itemize receipts: By itemizing 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.

Pickup orders

  • Cardholder signature

  • Identification presented by the cardholder, such as a credit card, to verify the order is going to the correct person

Delivery orders

  • Photograph of a completed delivery

  • A confirmation from the delivery partner that the food was delivered

  • Messages between the customer and delivery worker that acknowledge receipt of the food

  • A review of the product or service rendered to show the delivery was completed; in some cases, customers can rate a delivery using stars or by tipping the delivery worker

  • Timestamps from the food delivery. if possible, timestamps for all steps of the food delivery process from pickup to delivery is helpful for tracking

Signatures upon delivery aren’t the norm when it comes to food delivery, but there are still some best practices when it comes to card-not-present transactions.

For restaurants that have moved their businesses online, experiencing an increase in fraud disputes can make them feel blindsided. Businesses have been resilient by finding new ways of doing business, but unexpected chargebacks can still be very painful. By communicating with customers and keeping track of orders, you can help prevent and mitigate chargebacks.