Most small – to midsize business owners (SMBs) and marketers think that a fantastic idea or product is all they need to have in order to succeed in the open marketplace of ideas. They could not be further from the truth. In fact, all businesses rely on having a variety of different components and tools in place if they want to be able to turn a regular profit.

Depending on the product or service they are offering for sale, they may need equipment, office space, tools, raw materials, employees, or any one of dozens of different possible inputs in order to successfully create their product or service, and then also market it to customers.

One thing that almost every organization will need access to regardless of industry or niche is a bank, and the other financial instruments needed to support daily commerce. Increasingly, financial processing equipment and agreements are also necessary in order to conduct business; plenty of studies exist that show the ability to accept debit and credit cards is increasingly expected by the general public.  

Getting this equipment is often as simple as entering into an agreement with a payment processing firm, and opening up a merchant account – although oftentimes a business will need to establish credit to get accepted by a Merchant Bank. Gareth Parkin the Managing Director of GoPromotional started out using Paypal to establish a credit history for his business and after 6 months was able to attain a traditional merchant account.

However, as many marketers eventually discover, often to their detriment, merchant accounts come with a whole new set of rules and regulations they may not be used to dealing with. Chargebacks and the regulations associated with them are of particular importance, as they can dramatically impact the true marketing costs associated with the campaigns they are trying to design and implement.

According to Marc Roberts, President of Operations at PlatPay, “The bottom line is, under our current economic system most businesses cannot survive without accepting credit cards.” He continued, “However, if they do not properly protect and insulate themselves from liability, particularly in association with chargebacks, that same fundamental ability can instead become a huge regulatory and fiscal burden for them.”

Defining Chargebacks

So what are chargebacks, how do they work, and what do SMBs and marketers need to understand about them?

In a nutshell, a chargeback is a return of monies to a customer, but a return initiated by the bank or financial institution backing the method by which the customer made the purchase, rather than by the merchant themselves.

Typically, this means a customer called and reported a problem to their credit or debit card issuer, who then refunded their money automatically to them.  If a merchant’s chargeback ratio exceeds certain levels (currently 1% of total sales for Visa and 0.5% for MasterCard), they will find themselves in violation of their compliance agreements and may lose their ability to process payments.

When a chargeback is initiated, the merchant is notified of the chargeback and is invited to respond to a request for information the issuing bank will automatically generate and send them. However, during this period, their funds have already been debited and the disputed amount will remain in the possession of the customer.

The merchant can attempt to provide documentation which disputes the chargeback, and ultimately a determination will be made as to which party is in the right. If the merchant loses the chargeback dispute, their money (and presumably the product or service) is gone for good.

The main impact chargebacks have on marketers comes in terms of the impact this process has on their true cost of marketing. Some industries are known to have endemic problems with chargebacks; payment processing services for businesses in these niches can be an expensive proposition, analogous to the fees associated with high-risk lending.

This can affect marketing costs at every step of the value chain, which can then require an overall price re-structuring or another similarly dramatic step to compensate for the changes.

Tommy Mello is the owner of a A1 Garage Door Nation, a garage door repair business in Phoenix, AZ.  His strategy of personally talking with and visiting customers that weren’t satisfied with the work done by A1 has been very successful in minimizing chargeback conflicts. “In the end, it’s about more than just chargebacks. Bottom line – my reputation is on the line. I have found that the majority of customers simply want to be heard and are very open to accepting a fair resolution to any complaints they may have. Many times, a customer that starts off upset about a certain issue can turn into one of your biggest advocates – if you just work to find a fair resolution.”

SMBs and marketers who wish to avoid these sorts of situations should suggest that their company employ a firm that offers chargeback rebuttal and management services, as a form of insulation against some of these expanded costs that could otherwise result from these situations.

These firms will investigate your chargeback compliance procedures, and completely handle the dispute resolution process for you, from initial data entry and response all the way up through final arbitration and judgment, when necessary.

Merchant Account Provider CPN USA Reveals Chargeback Prevention Strategies for Small Business Owners

That was the headline on a press release from this past January which highlighted released a list of chargeback prevention tips for small business owners.

At the top of the list among the most popular of strategies for chargeback prevention was the topic of branding.

From the release: “Some chargebacks happen because people don’t recognize a company listed on a credit card bill. If your store name is not memorable, you may be inviting trouble. In the event that you have a DBA name that differs from the name that ends up on statements, a sign at the register can head off problems. The same is true if you take cards through a third-party processor.”

Sources: Google Images, PRweb