Shopify Chargeback Dos and Don'ts

Shopify Chargeback Dos and Don'ts

To reduce the risk of experiencing Shopify chargebacks and their various adverse consequences, make use of these tips related to chargeback prevention measures.

Written by Tom-Chris Emewulu

5 min read

How to Avoid Costly Mistakes That Result in a Chargeback

If you’re a Shopify merchant, you’ve probably already heard of chargebacks. These are liability reversals that occur when a customer disputes a charge on their bill and their bank decides in their favor.

While Shopify chargebacks can occasionally inconvenience merchants who sell goods directly to consumers, they can devastate businesses that rely primarily on wholesalers.

The tips below will help you stay ahead of the game while still keeping your customers happy.


Shopify Chargeback Dos and Don'ts

When it comes to chargebacks, a little goes a long way in preventing them and the associated costs. An in-depth analysis of chargeback costs conducted by Lexicata revealed that the average chargeback cost stands at $25.

This can quickly add up when an organization experiences frequent chargebacks. To reduce the risk of experiencing Shopify chargebacks and their various adverse consequences, consider implementing dos and don’ts related to chargeback prevention measures:


Do educate your employees about chargebacks

Vendors need to be aware that chargebacks are a risk in any industry. Most chargebacks occur for non-delivery, misrepresentation, and service issues. If an employee is not aware of how a customer can initiate a chargeback, they will have no way to prevent it. They will not know how to spot con artists trying to commit chargeback fraud. Or even respond to the chargeback notice with a legitimate reason why the chargeback is invalid.


Do ship your products with trackable proof of delivery

Tracking a package is essential as it gives valid proof the item got to the customer. Trackable proof of delivery also helps handlers get specific information about the parcel, such as its origin and destination. This data will be accessible on the shipping company’s site and prove that the package went through that route.

With a tracking system, a buyer and seller can quickly get vital details on the package's location. The absence of such information means you’ll have difficulty contesting a chargeback where the buyer claims they didn't receive their order.


Do provide excellent customer service

two hands passing a credit card between them

Put your policies where customers can quickly locate them, and be sure your customers can easily understand your terms of service. Being responsive to your buyers will ensure they can always talk to you before talking to their bank. Therefore, ensure they know how to reach you when they have any issues with their order. Of course, taking these measures will be useless if your team doesn’t understand what they can do to avoid chargebacks.


Don't provide too much information in your invoices

Invoices are how you record the services you provide your clients and are also the very first line of communication with your customer after a transaction. Make sure your first impression is a positive one. Make your invoice accurate and easy to read.

Ideally, your invoice should include the following:

  • Date of the transaction
  • Name of the company and customer
  • Section for the transaction details (date, product, amount, etc.)
  • Name of the person responsible for the transaction
  • Signature line for the customer (or authorized representative)
  • Bottom line (total amount due)

Don't take too long to process refunds

If a customer requests a refund, be sure to act quickly. A common Shopify chargeback reason is that the customer never received or didn’t recognize the item(s) for which they were charged. The customer or their bank may initiate this type of chargeback. The customer may request a chargeback through their bank if they don't believe you have responded to a refund request promptly.

Even though scammers use the same strategy to game the chargeback system, you can be sure to avoid legitimate chargebacks of this type by responding promptly to refund requests. The best practice is to respond to a request within 10 days and issue the refund or upsell as soon as possible.

person reading invoices

Don't provide a courtesy copy of the invoice with the refund

Another common reason for Shopify chargebacks is when the customer disputes the amount of the charge or the transaction’s legitimacy. This chargeback can occur if the customer thinks you are issuing a courtesy copy of the invoice with a refund, which some credit card processors require. To avoid that, ensure your refund procedure is consistent. If you always issue a refund to the card that was charged or send a check with a copy of an invoice, you will avoid this chargeback.


Don't use vague or confusing terminologies in your contracts, and don't perform unnecessary services as part of your contract

If you contracted third parties to craft your agreements, review them carefully and ensure all terms are clear. Ambiguous or confusing language in your contracts could result in chargebacks. Again, if you promise a specific service in your agreement without delivering it and the customer initiates a chargeback, you will lose the dispute. Think carefully before including additional services in your contracts.

If you decide to offer some value-added service, ensure it is written into your contract. For example, if you are providing a catering service, you may promise to set up your food and beverage services for a specific number of guests. However, if the customer only ordered food for 50 guests and you have 50 tables set up, you have over-delivered. This is an example of when you need to get out your contract and make sure it is clear what services you will be providing.


Don't have excessive requirements for issuing a refund

If a customer initiates a chargeback, you will almost always win the dispute if you give the refund as soon as possible. However, some banks will ask you to prove that the refund was issued. An accounting system keeps track of who gets charged and when helps you establish that you gave a refund.

That said, if you have a contract with the customer, you have the right to take a reasonable amount of time to process the refund. Yet, you must be consistent. Always process refunds as quickly as possible. If you always take ten business days to process the refund and a customer initiates a chargeback, you will lose the dispute.

person writing on paperwork

Bottom line

Chargebacks are non-negotiable if you sell anything online. Things occasionally go wrong with ecommerce transactions, which result in disputes.

No matter how careful you are in pre-empting Shopify chargebacks, you will still deal with a meritless chargeback, especially now that online shoplifters are weaponizing chargebacks to commit friendly fraud. Using Chargeflow's fully automated chargeback solution to create a data-driven dispute response strategy is how you stop leaving money on the table. Whether your company rarely experiences chargebacks or is experiencing an unusually high number of disputes, Chargeflow gives you tools to avoid business death by chargebacks.


Important Chargeback FAQs

What is the chargeback reason code?

A chargeback reason code is a 2-to-4-digit alphanumeric code chosen by the issuing bank from a predetermined list to reveal the reason the cardholder gave for requesting a chargeback. Every card brand has a unique set of chargeback reason codes banks must choose from.

What is a chargeback time limit?

The chargeback response time limit is a predetermined deadline for responding to a chargeback. Chargeback time limits differ by credit card network, but the standard time limit is 30 days. Time limits are calculated beginning from the day the cardholder filed the chargeback. Sometimes, that might be several days before the merchant receives the chargeback notification.

Should you fight every chargeback that comes your way?

You must contest ALL meritless chargebacks. Writing off chargebacks as a cost of doing business is a double tragedy because it opens your business up to chargeback frauds. Excessive chargebacks can impact the sustainability of your business and cost you processing privileges.

What is friendly fraud?

Friendly fraud, also called chargeback fraud, is when a cardholder makes a transaction and then requests a chargeback from their bank after receiving the purchased goods or services. Estimates show that friendly fraud accounts for 70% of all chargebacks.

What is a chargeback fee?

A chargeback fee is a non-negotiable fee, charged to merchants each time they receive a chargeback. It's an incentive for merchants to avoid chargebacks as much as possible. Nevertheless, Shopify refunds chargeback fees if the merchant wins the chargeback dispute. Shopify's chargeback fee for U.S. merchants is $15.

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