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How to Legally Protect Your Business Against Chargebacks in Your Digital Product Based Business

How to Legally Protect Your Business Against Chargebacks in Your Digital Product Based Business

Want to hear something crazy but totally legal?

Without the right policies in place and used correctly in your business, someone can buy your offer (whether it’s a product or service), use it, benefit from it and THEN ask their bank to take their money back and return it to their account.

Sounds absolutely absurd, right? I agree, but as your legal bestie I’m here to say that this scenario is way more common than you may think and it actually costs businesses $150 BILLION per year. 🤯

This whole concept is called a chargeback and it applies to BOTH digital product based businesses and service providers.

For this blog specifically, I’ll be zooming into chargebacks for digital goods and services – if you’re a service provider looking to protect yourself and your business from chargebacks, CLICK HERE.

Digital goods sellers have 10x more chargeback exposure than physical goods sellers – which really just means that if you’re selling things online and people receive their purchase in the form of a digital asset (such as a course), you are at MAJOR risk.

Selling digital goods is very prominent in our online world and has become super common in recent years with the explosion of online businesses.

As an online business owner myself that sells digital products, I can agree that after pouring my time, energy and efforts into a digital product, the last thing I want is to LOSE the profits from it.

After all, you create digital products to increase your income and bring in consistent passive cash, right? And without sounding dramatic, passive product sales can literally change your life.

But that life change could look VERY different if you aren’t taking the steps to protect yourself legally.

The more you sell, the more you risk when it comes to chargebacks and credit card disputes. 💸

Whether it’s because customers feel you haven’t kept your promises, are unsatisfied with your offer or think your delivery was sloppy, chargebacks ALWAYS hit you where it hurts: your wallet!

So, to help you avoid this hurt, let’s dive into what exactly a chargeback is and HOW to avoid them in your digital product based business. 


First things first, let’s talk about what a chargeback even means. People often think that a chargeback is the same thing as a refund, but they are VERY different. 

I’ll dive into those details more in a minute, but for now, a chargeback is a process where a consumer disputes a transaction made with their credit or debit card and requests a return of their from the card issuer or their bank.

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 consumer protection mechanism 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. 

Before I get into how you are affected by chargebacks as a business owner, let’s quickly touch on how chargebacks are different from refunds.


As mentioned earlier, a chargeback and a refund are two VERY different things and although they both involve returning money to a consumer, they are completely different processes and have key differences including:

  • Initiation

First and foremost, 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.

  • Decision-making authority

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. 

  • Financial responsibility

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.

So, back to how you’re affected with chargebacks…


When most people think of chargebacks, they only think about the selling price of the product or service they purchased.

“Oh, that was only $100! That’s not a big deal for them.”

You’d be surprised at how many people really do think that way. 

But what they’re not considered are all of the other fees and additional costs associated with chargebacks that can add up to be over 200% of the transaction value. 🤯

Yes, you read that correctly… over TWO HUNDRED PERCENT.

So let’s take that $100 product for example. 

If someone were to request a chargeback, the additional fees and costs associated with that one request could equal up to $300.

That means if you received 4 chargeback requests on a $100 product, you could potentially find yourself in a pool of over $1,000 of fees and costs.

And as a business owner, I’m willing to bet that $1,000 means a lot to you. (It sure does to me!)

If this scenario is the LAST thing that you want to experience in your business, having protection in place is KEY. 🔑


What’s so crazy about the work that I do is that the action you need to take to prevent any major issues, like chargebacks, is actually very simple. 

It just requires a little extra effort to make sure you have all of your legal ducks in a row. But it really isn’t that complicated – at least not when you use the resources I’ve created!

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.

The KEY in this 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. 💸👏

Moral of the story: take the extra steps to make sure your business is legally backed so that you can win like the boss business owner that you are.