9 Ways To Prevent Chargebacks For Your Business Today

As someone who has managed multiple online stores, I’ve dealt with my fair share of chargebacks. I wrote this article to help you reduce the likelihood of experiencing chargebacks.

I’ll first provide strategies to use to deter chargebacks (on most platforms and websites). From there, we’ll explore ways to prevent chargebacks on platforms like Twitch.

Let’s begin.

Key Takeaways

• Secure technology and updated software are essential for protection.
• Clear store policies displayed prominently minimize customer confusion.
• Accurate inventory management prevents stock-related disappointments and chargebacks.
• Realistic shipping expectations and proactive communication build customer trust.
• Address Verification Services (AVS) help confirm customer billing information.

9 Ways to Prevent Chargebacks

Here are various ways to prevent chargebacks:

• Maintain Secure Technology: Update software, use EMV terminals, and enable NFC payments for strong first-line defense.
• Clear Policies: Clearly display return policies and shipping information to eliminate customer confusion.
• Manage Inventory Accurately: Implement a reliable inventory system to prevent overselling and disappointing customers.
• Manage Shipping Expectations: Provide realistic timelines and tracking information to avoid delivery-related disputes.
• Truly Free Trials: Avoid upfront credit card requirements and provide clear cancellation instructions.
• Refund Double Charges Immediately: Issue refunds promptly to prevent customer frustration and chargebacks.
• Utilize 3D Secure: Add an authentication layer to reduce fraud, but balance security with customer experience.
• Secure the Payment Process: Protect customer data and limit access to payment terminals to reduce fraud.
• Utilize AVS and CVV: Verify billing information matches the card issuer's records to reduce fraudulent transactions.

Keep reading to find more details about each chargeback-prevention technique.

1. Maintain Secure Technology

This means actively protecting your systems and using secure payment methods to minimize vulnerabilities.

Here are some key strategies to consider:

1. Regularly Update POS Software: Point-of-sale (POS) software updates often include critical security patches that fix vulnerabilities hackers might exploit. Schedule regular updates to ensure your system is protected against the latest threats.

2. Use EMV-Compliant Terminals: EMV stands for Europay, Mastercard, and Visa—the 3 major credit card companies that developed this chip technology. EMV chip cards contain unique encrypted data, making them much harder to counterfeit than traditional magnetic stripe cards.

EMV chip cards have (so far) helped reduce counterfeit fraud by as much as 87% [1].

Invest in terminals that accept EMV chip payments to reduce the risk of fraudulent transactions initiated with stolen card data.

3. Enable NFC Payments: Near Field Communication (NFC) enables contactless payments using smartphones or digital wallets.

Since the physical card never leaves the customer's hand, it reduces the risk of card skimming. A common tactic where fraudsters steal card information using specialized equipment.

Consider enabling NFC transactions (like Apple Pay and Google Pay) to offer a secure and convenient payment option for your customers.

Consider partnering with a reputable payment processor who offers additional security features like tokenization (again, like Google Pay). Tokenization replaces card details with digital tokens during transactions. Further reducing the risk of stolen card data being used for fraudulent purchases.

Summary: Protect your business by updating software, using EMV terminals, and enabling NFC payments. Partner with a secure payment processor for added protection.

2. Clear Policies

Create accessible, yet thorough store policy pages that minimize chargebacks that stem from customer confusion.

Here are some strategies to help:

• Comprehensive Return/Refund Policy: Outline eligible return reasons, the timeframe for returns, restocking fees (if any), and how refunds are issued (store credit versus original payment method).
• Detailed Shipping Policy: Specify shipping carriers used, estimated delivery times for different locations, costs, and how to handle lost or damaged shipments.
• Product Descriptions and Photos: Provide accurate, detailed descriptions of products, including dimensions, materials, and potential flaws. Use high-quality photos from multiple angles.
• Clear Billing Descriptor: Configure your payment processor so the billing descriptor on customers' credit card statements matches your business name or DBA ("doing business as") name.
• Easy-to-Find Contact Information: Provide a phone number, email, or contact form for customers to reach you easily with questions or concerns.

United Airlines makes their refund policy easy-to-read by allowing customers to select refundable categories.

Use plain language and avoid confusing legal jargon. Write policies in clear, concise language that the average customer can understand.

Summary: Detailed policies that are easy to find eliminate confusion and prevent "item not as described" or shipping-related chargebacks.

3. Manage Inventory Accurately

When a customer places an order, the last thing you want is to discover the item is actually out of stock. This can lead to frustration and potentially, a chargeback.

Here are some ways to reduce chargebacks that stem from inventory-related issues:

1. Inventory Management System (IMS): Choose an IMS that suits your business. For dropshipping, find one that integrates with your suppliers and updates inventory data in real time.
2. Regular Inventory Counts: Conduct periodic physical counts, especially for high-value items or those from less reliable suppliers. This helps verify the accuracy of the IMS data. The frequency of these counts depends on your business volume, product types, and supplier reliability. For high-volume or unpredictable inventory, weekly or daily counts might be necessary.
3. Set Safety Stock Levels: Determine minimum stock levels for each product. Consider lead times and supplier reliability when setting these levels.
4. Automate Inventory Updates: Whenever possible, integrate your IMS with your sales channels, dropshipping suppliers, and shipping systems. This automatically reduces inventory numbers after a sale and avoids stock discrepancies. Many e-commerce platforms and inventory management systems offer integrations to achieve this. For example, if you sell on Shopify and your supplier provides real-time inventory data, look for a solution that automatically pushes that data into your Shopify store to update stock levels.
5. Dropshipping Partner Communication: If dropshipping, choose suppliers with transparent inventory tracking and frequent communication.

Summary: Use an inventory system, perform regular counts, set safety stock, automate updates where possible, and choose reliable dropshipping partners.

4. Manage Shipping Expectations

When customers understand what to expect from the start, they are less likely to initiate disputes due to perceived lack of delivery or unexpected costs.

Here are some ways to help prevent confusion that stems from shipping:

• Provide Realistic Timeframes: State estimated delivery windows on product pages and during checkout. Account for processing time, shipping carrier delays, and the customer's location.
• Choice of Shipping Carriers: Offer multiple shipping options with varying costs and delivery speeds to cater to customer needs.
• Transparent Shipping Costs: Display shipping costs upfront and itemize them clearly in the order confirmation. Avoid hidden fees or unexpected additional charges.
• Tracking Information: Provide tracking numbers as soon as possible. Include a link where customers can directly track the progress of their shipment.
• Proactive Communication: If delays occur, notify customers immediately and offer alternatives or estimated new delivery dates.
• International Shipping: Specify the carriers you use for international shipments and outline expected delivery times. Be transparent about potential customs delays and additional taxes or duties the customer may face.
• Shipping Insurance: Consider offering shipping insurance, especially for high-value items, as an optional add-on for customers.

Summary: Set clear shipping expectations from the start with realistic timings, multiple carrier options, transparent pricing, and proactive communication.

5. Truly Free Trials

"Free trials" usually entice new customers, but hidden fees or misleading auto-enrollment into paid subscriptions can lead to frustration and chargebacks.

Prevent chargebacks related to free trials with these tips:

• No Payment Info Upfront: If possible, avoid requiring any credit card information for trial sign-ups. This eliminates the risk of customers forgetting they entered their details and experiencing an unexpected charge.
• Clear Trial Length: State the trial duration (e.g., 14 days) and the exact date it will convert to a paid subscription if not canceled.
• Easy Cancellation: Provide clear, easy-to-follow instructions for canceling the trial before the end date. Make the cancellation option accessible within the user's account settings.
• Reminders Before Conversion: Send multiple email reminders (e.g., 3 days and 1 day before) giving customers ample notice before their trial ends, along with a cancellation link.
• Consider Alternatives: If requiring credit card info is unavoidable, consider offering a free limited version of your product or service without an auto-conversion to a paid plan.
• Customer Service: Ensure your customer service team is equipped to handle cancellation requests promptly and without pressure tactics.

Summary: Truly free trials don't require payment information upfront, clearly outline terms, offer easy cancellation, and send timely reminders.

6. Refund Double Charges Promptly

Refund double chargebacks immediately.

That isn’t all, though. You’ll need to keep this information in mind:

• Monitoring Systems: Implement systems or procedures to flag potential duplicate transactions. This could involve manual checks or automated alerts based on order amount, customer details, and short time intervals between transactions.
• Proactive Communication: Contact the customer to apologize for the error and confirm that the refund has been processed. This proactive approach demonstrates your commitment to addressing issues.
• Staff Training: Train staff on how to identify and handle double charges, as well as how to escalate issues if necessary.
• Technology Solutions: Explore payment processing solutions that offer duplicate transaction prevention features or automatic reconciliation tools.

Summary: Monitor for double charges, refund them immediately, and communicate with the customer to prevent unnecessary chargebacks.

7. Utilize 3D Secure

Pros of 3DS:

• Reduces fraud risk: 3DS adds a strong layer of security, making it harder for fraudsters to use stolen card information for online purchases.
• Chargeback liability shift: In some cases, using 3DS can shift chargeback liability away from the merchant and towards the issuing bank.

Cons of 3DS: 

• Increased cart abandonment: The extra authentication step can add friction to the checkout process, potentially leading some customers to abandon their purchases.
• Geographic limitations: 3DS implementation and customer familiarity with it can vary across countries and issuing banks.

3D Secure (3DS) is a security protocol designed to add an additional layer of authentication to online card transactions. It redirects the customer to their bank's website to verify their identity, typically by entering a password or one-time code.

This helps reduce fraud, but it's important to understand its potential impact on security and customer experience.

If you decide to use 3D Secure, consider these strategies:

• Selective Use: Use 3DS for high-risk transactions (e.g., large orders, international shipments, unfamiliar billing/shipping addresses).
• Dynamic 3D Secure: Opt for dynamic 3DS solutions (e.g., Stripe Radar) that analyze various data points to determine risk and only trigger the extra authentication step when necessary.
• Clear Communication: Explain to customers why they're encountering the 3DS step, assuring them it's for their security.

One case study suggests that implementing 3D Secure has reduced chargebacks by 50% and reduced fraud-related costs by 30% [2]. Thus, proving it’s helpful.

Summary: 3D Secure adds security but can impact conversion rates. Use it selectively and consider dynamic solutions to balance protection with customer experience.

8. Secure the Payment Process

This section is more-so related to payment processes in general.

Here's how to minimize risks:

• Limit Customer Access to Terminals: Avoid letting customers handle payment terminals directly. This reduces the risk of tampering with the device or card skimming attempts.
• Process Refunds Properly: Always issue refunds back to the original card used for the purchase. Issuing refunds to a different card or in cash opens a window for fraudulent activity.
• Secure Storage of Card Data: If you need to store customer card information (e.g., for recurring subscriptions), comply with PCI DSS standards and use a reputable payment processor that offers secure data encryption and tokenization.
• Monitor for Suspicious Activity: Review transaction reports for unusual patterns, repeated failed attempts, or multiple transactions from a single card within a short time.
• Staff Training: Educate your staff on secure payment practices, how to spot potential fraud attempts, and the importance of data security.:
• Understand Common Fraud Tactics: Stay informed about the latest fraud techniques, such as card skimming, social engineering, or phishing attacks, to proactively adapt your security measures.

Work with a well-established payment processor that prioritizes security and offers robust fraud detection tools. For example, a provider like Stripe offers tokenization, which replaces actual card details with unique digital tokens during transactions.

This reduces the risk of stolen card data being used for fraudulent purchases. Stripe also employs fraud prevention models that analyze transactions for suspicious activity and helps to minimize fraudulent chargebacks.

Summary: Limit customer access to terminals, process refunds correctly, store data securely, monitor activity, train staff, and stay informed about fraud techniques.

9. Utilize AVS & CVV: Verifying Customer Information

Here are the differences:

• Address Verification Service (AVS): AVS compares the billing address entered by the customer with the address on record with the credit card company. Mismatches can indicate potential fraudulent activity.
• Card Verification Value (CVV): The CVV is the 3-digit code (or 4-digit for American Express) located on the back of most credit cards. Requesting the CVV helps ensure that the customer has the physical card in hand.

Many payment processors will have their own AVS or CVV, but will collect a fee (from you). Many of these fees are around $0.05–$0.25 per sale. However, these verification methods will give you an additional life of defense to potentially mitigate chargebacks.

Here’s what you need to know about implementing AVS and CVV:

• Understand AVS Codes: Familiarize yourself with different AVS response codes to determine how to proceed with transactions based on the level of match (full match, partial match, no match).
• Selective Action Based on Risk: Consider declining transactions with significant AVS/CVV mismatches, especially for high-risk orders. For partial matches, you might proceed with the transaction but flag it for additional manual review.

AVS and CVV are not foolproof. Fraudsters might sometimes have access to a victim's correct billing information or CVV code. Use AVS and CVV in conjunction with other fraud prevention strategies, such as 3D Secure and risk analysis tools, for a comprehensive approach.

Summary: Enable AVS & CVV checks with your payment processor, understand response codes, and use them as part of your risk assessment strategy.

Platform-Specific Strategies to Prevent Chargebacks

The following sections will cover chargeback prevention tactics for the following platforms and payment processors:

• Shopify
• PayPal
• Stripe
• Square
• Cash App
• Twitch

Most platforms will have the same chargeback prevention methods as found under “General Strategies.” However, many platforms (e.g., Twitch), will have different required tactics due to their platform’s nature and demographic.

Let’s dive in.

1. How to Prevent Chargebacks On Shopify

Here’s how to help prevent chargebacks on Shopify:

1. Rapid Dispute Resolution: Respond to chargeback notifications within Shopify's deadlines (7–21 days). Prepare standard templates for common disputes to save time.
2. Prevention Alerts: Set up Shopify alerts based on your risk tolerance (e.g., high order amounts, international IP addresses). Have a process for reviewing and canceling suspicious orders if needed.
3. Order Validation: Create a checklist of red flags to look for (mismatched addresses, rush shipping, unusual quantities). Contact the customer for verification if necessary.
4. Address Verification Checks: Enable Address Verification Service (AVS) within your Shopify Payments settings. Understand AVS codes to take appropriate action based on results.
5. Built-in Fraud Prevention: Familiarize yourself with Shopify's fraud analysis scores. Consider upgrading your Shopify plan for more advanced fraud protection.

Summary: Shopify has tools to fight chargebacks, use them proactively. Clear communication and order scrutiny also prevent many chargebacks.

2. How to Prevent Chargebacks On Paypal

Here’s what you’ll want to do to help prevent chargebacks with PayPal:

1. Proactive Dispute Resolution: Suggest using PayPal's Resolution Center to resolve issues before a chargeback is filed. Familiarize yourself with the resolution process to respond effectively.
2. Reliable Shipping: Use trackable shipping methods and provide realistic delivery timelines. Require signature confirmation for orders more than $750 USD to ensure the customer receives their order. And offer insurance for fragile or high-value items against shipping damage.
3. Risk Assessment: Delay high-risk orders (e.g., international, large amounts, unusual shipping requests) for 24–48 hours for additional verification. Contact the customer to confirm order details if needed.
4. Partner Responsibility: If using dropshipping, carefully vet suppliers, have clear agreements about order fulfillment, and monitor their performance for any red flags.

Summary: Clear communication, accurate descriptions, and reliable shipping are key to preventing PayPal chargebacks. Use PayPal's chargeback protection tools, implement safeguards like signature confirmation, and carefully manage order risk to protect your business.

3. How to Prevent Chargebacks On Stripe

Here are some ways to help prevent chargebacks on Stripe:

1. Leverage Stripe Radar: Stripe's fraud prevention tool uses machine learning to analyze transactions. Customize rules to block high-risk orders or trigger manual reviews. The costs for this service will vary by how much protection you want.
2. Utilize Micro-deposits: For specific business models (e.g., those with high average order value or subscription services), consider using micro-deposits to verify a customer's bank account ownership before processing large or recurring transactions.

Here's how it works:

• Initiate micro-deposits: When a customer enters their payment information, your system triggers two small deposits (usually between $0.01 and $0.99) into their bank account.
• Customer verification: The customer must then log into their online banking and identify the exact amounts of the micro-deposits. They enter this information back on your website to confirm their ownership.
• Refund micro-deposits: Once the account is verified, refund the micro-deposits or apply them toward the customer's first purchase.

3. Stay Updated on Regulations: Be aware of changing card network rules or regulations around chargebacks, as these can impact your prevention strategy.

Summary: Stripe offers powerful fraud tools—customize them for your business. Collecting extra data and staying informed helps reduce chargeback risk.

4. How to Prevent Chargebacks On Square

Here are ways to help protect yourself from chargebacks on Square:

• Optimize the Itemized Receipt: Include clear descriptions of products or services, especially for custom orders. This helps minimize customer confusion or "item not as described" disputes.
• Leverage Transaction Notes: Use this Square feature to document conversations with customers, order changes, or any special requests. This provides a valuable record if a dispute arises.
• Offer "In-Store Pickup" When Possible: This option reduces the risk of shipping-related chargebacks and gives you a chance to interact with the customer directly.

Square had a Chargeback Protection program, but they shut it down. Now they use Square Risk Manager. It uses machine learning and risk analysis to help prevent fraudulent transactions. You can customize settings to block or flag suspicious orders based on your business's risk tolerance.

Summary: Square provides tools to fight fraud. Use them. Careful documentation and offering flexible fulfillment options can reduce chargeback risk.

5. How to Prevent Chargebacks On Cash App

Cash App doesn’t fit well into this list, but if you’re dealing with any transactions, you should know about preventing chargebacks:

• Know Your Customer: While Cash App isn't designed for business transactions, if you must accept payments this way, try to establish a relationship with the buyer beforehand.
• Clear Communication is Key: Agree on the goods or services exchanged and the price before accepting payment. Document this agreement via text or email outside of Cash App.
• Use Detailed Payment Descriptions: Include what the payment is for and any order numbers. This helps avoid unrecognized charge disputes.
• Get Delivery Confirmation: If shipping physical goods, always obtain tracking and delivery confirmation to prove order fulfillment.
• Small Transactions: Cash App prioritizes personal payments. Consider limiting business transactions to smaller amounts where the potential chargeback cost is lower.

Cash App doesn’t offer chargeback mitigation features for sellers like other platforms (e.g., PayPal) do. Avoid using Cash App for large transactions if possible.

Summary: Cash App isn't ideal for business use due to chargeback risks. If you must use it, prioritize clear communication and transaction documentation.

6. How to Prevent Chargebacks On Twitch

Common reasons for chargebacks on Twitch:

• Fraudulent charges: Someone uses a stolen credit card to make a donation or purchase a subscription.
• Unrecognized charges: The viewer doesn't remember making a donation or subscription, or they don't recognize the charge description on their statement.
• Accidental subscriptions: Viewers might accidentally subscribe or renew a subscription.
• Dissatisfaction with content: A viewer might be unhappy with the streamer's content or feel they didn't receive promised rewards for donating or subscribing.
• Technical issues: Glitches or errors on Twitch's side might result in accidental or duplicate charges.

Twitch isn’t a payment processor. But if you’re a streamer, you’ll need to know how to prevent chargebacks:

• Highlight Donations as Non-Refundable: Make it very clear that donations are contributions, not purchases. Use on-screen overlays, channel descriptions, and verbal reminders.
• Offer Perks (Not Products): Instead of direct "rewards" for donations, consider offering exclusive emotes, badges, or behind-the-scenes access.
• Engage with Your Community: Build relationships with viewers. This makes them less likely to file disputes out of frustration or misunderstanding.
• Set Donation Limits: Consider limiting very large donations to minimize risks or implement a short verification delay before they are processed.
• Promote Twitch Bits: Encourage viewers to use Twitch Bits, the platform's digital currency. Bits purchases are non-refundable, eliminating chargeback risk.

Twitch doesn’t offer chargeback protection for streamers. However, the payment processor you use (e.g., PayPal) may offer a variation of chargeback protection.

Summary: On Twitch, transparency and community engagement are key. Focus on fostering a supportive environment while acknowledging that chargebacks are a risk of the platform

Chargeback Considerations for International Merchants

Here are key areas to consider:

• Understand Local Regulations: Familiarize yourself with consumer protection laws and chargeback procedures in the countries you serve. Some regions might have shorter chargeback timeframes or stricter requirements for merchants.
• Clear Communication: Provide detailed, multilingual product descriptions, shipping policies, and return procedures on your website. Set realistic expectations about delivery times and potential customs fees.
• Proactive Customer Service: Offer multiple ways for international customers to reach you (email, phone with multiple time zone support, etc.). Respond promptly to inquiries to reduce the chance of misunderstandings escalating into chargebacks.
• Shipping and Logistics: Partner with reliable international carriers and provide tracking information to customers. Consider using insured shipping for high-value items.
• Currency Conversion: Display prices in the customer's local currency (if possible) to avoid confusion and disputes related to exchange rates.
• Language Translation: Consider translating important sections of your website and communication materials beyond the product pages. This could include FAQs, return policies, and contact information.

Taking the time to address the unique challenges of international commerce can reduce your chargeback risk and help build trust with customers worldwide.

Summary: International transactions require extra fraud protection, knowledge of local regulations, and clear communication. Professional translation builds trust and prevents misunderstandings.

Wrapping Up

Preventing chargebacks takes ongoing effort and attention to detail. By following these strategies, you'll protect your profits and reputation.

We also offer a tool to help prevent chargebacks that’ll integrate with all major payment processors. Learn how it works and the ways it’ll save your business money.