A Business Owner’s Personal Nightmare: Chargebacks and Refunds (Here’s How To Avoid Them)
Picture this: it’s a normal day in your business owner life – you wake up, pour yourself a cup of coffee, and sit down at your desk to sift through some emails before your day gets busy.
Instead of being met with your typical inbox flood of newsletters and promotions, you’re hit with the nightmare of multiple chargeback and refund requests. 🥴
What the heck?!
Things were going great and you have happy clients – what gives?
Chargebacks and refunds are truly one of the most frustrating things to deal with as a service provider and oftentimes people don’t even fully understand the difference between the two until it happens to them.
The GOOD news for you is that here at The Boutique Lawyer, not only do we provide the legal education you need to handle scary scenarios like this, but also the tools and resources to avoid them altogether through our contract shop.
This Halloween we’re dishing out all TREATS, no tricks with 50% off all contracts, so you can be fully prepared and ready to handle any legal scenario that comes your way with ease and confidence.
October 24th through 31st you can treat yourself to the contracts that help protect your business from top to bottom and ultimately help you keep more of the money that you make in your bank account. 💸
SAVE THE DATE for the best sale of the year (no really, even Black Friday won’t be this good), and while you’re waiting, keep reading to learn the difference between chargebacks and refunds and learn how to avoid them in your business. ⬇️
What Is A Chargeback?
Imagine going to a restaurant, ordering a dish, and then, after eating most of it, deciding that you didn't like the taste or presentation.
You call the waiter over and tell them you won't pay for the meal because it didn't meet your expectations.
Sounds pretty illegitimate, right?
Well, scenarios like this happen in business more often than you may think and are referred to as chargebacks in the world of online transactions.
A chargeback involves disputing a payment after the fact, typically because the customer claims the product or service didn't meet their expectations or was unsatisfactory.
The ability to request a chargeback can be a great thing in the instance of fraudulent charges, but the sad part is that people abuse chargebacks and misuse them and that’s where business owners see the brunt of it.
Chargebacks were initially designed to be a form of consumer protection to provide a resolution for unauthorized or fraudulent transactions, billing errors or purchases not delivered as promised, but as the online business industry has grown, chargebacks have too… and not in the way they were intended.
When someone initiates a chargeback, the card issuer or bank will investigate the claim and determine whether or not it’s valid.
Although there is an investigation before chargebacks are issued, in most cases it can be difficult to obtain tangible proof of validity, so oftentimes their financial institution will be on the side of their customer, believe that their claim is true and approve the request.
And this is where you as the business owner start to experience negative impact from chargebacks.
The Difference Between Chargebacks and Refunds
Despite what many people think, a chargeback and a refund are two VERY different things and although they both involve returning money to a consumer, the process isn’t the same.
The key differences include:
The biggest difference between a chargeback and a refund is how the request is initiated.
For chargebacks, the request is initiated by the consumer and involves contacting their card issuer or bank to dispute a transaction.
A refund, on the other hand, is typically initiated by you (the merchant) in response to a customer’s request for a return or reimbursement.
So essentially, a refund is mutually agreed upon, whereas with a chargeback, you have no say in the request at all as the business owner.
With a chargeback request, the final decision to approve the request lies in the hands of the card issuer or bank. As mentioned earlier, they will investigate the dispute and determine whether the consumer’s claim is valid.
With a refund, you have way more control over the process and can decide whether or not to issue a refund based on your own policies and the circumstances of the request.
Additionally, as a business owner, you have the ability to offer alternatives to refund requests, such as issuing gift cards, coupon codes or goods that are equivalent to the original purchase.
In the instance of a chargeback, the financial burden falls on you as the business owner if the dispute is upheld. Not only will you pay for the lost revenue and overhead of the transactions, but additional fees are also typically included with chargeback requests.
Overall, if a chargeback is granted for one of your customers, the transaction can be debited from your account without any notification or warning and you have zero control over it.
With a refund, however, you typically don’t experience additional fees and don’t experience as much financial backlash that you do with chargeback requests.
How To Avoid Chargeback and Refund Requests
The key to many of the things that I talk about here at The Boutique Lawyer is being proactive in your approach as a business owner and service provider by setting your business up for ultimate success BEFORE anything negative comes your way.
This includes being proactive in setting up policies for both chargebacks and refunds for your business!
Through my work, I’ve found that many people avoid the legalities in their business because they simply don’t know HOW to do it and they don’t want to spend time on Google figuring it out.
That’s why I’ve dedicated my entire career to learning this stuff for YOU and creating simple ways (like for real, we’re talking plug and play templates) for you to protect yourself as a business owner so you can continue living in your zone of genius and do what you love – while also profiting from it!
To protect your business against chargebacks as a digital product based business, you simply need a Terms of Purchase for Digital Goods and Services.
If you sell physical products, use this one!
The KEY in your Terms of Purchase is that you have a chargeback clause (this template already has that for you) and make sure that your terms are set up as a clickwrap (more on that here!) at checkout, so that the customer is actively agreeing to them when they make the purchase.
When this is setup, if a customer attempts a chargeback, you can send their financial institution a copy of the agreed-upon terms and in most cases that little document will settle the dispute in your favor.
Your Terms of Purchase should also clearly outline your financial processes and policies to avoid unwarranted refund requests.
Legally Protect Your Business From Top To Bottom
During spooky season and beyond, I encourage you to consider implementing each of these and creating client contracts so you can be proactive in avoiding nightmares like these
If your business is missing one (or all) of these, take advantage of our scary good deal to get 50% off any contract you need October 24-31!
With the right contracts and legal strategies in place, you can enjoy a successful, horror-free business journey.
Here’s to making spooky season a little less spooky this year. 🎃