How to Prevent and Manage Returned Shipments as a Merchant

Introduction

Chargebacks are the opposite of a credit card chargeback that comes directly from the bank, rather than a refund from the affected merchant, and they serve as a means for customers to dispute a charge on their credit card bill. Why do chargebacks happen?

Reasons for Chargebacks

There can be several reasons for initiating chargebacks, such as:

• Non-receipt of the item: Currently, when there are delays in the supply chain and shipping, customers expecting their products to be delivered at a certain time may initiate a chargeback.
• Merchant error: Double billing or incorrect charged amount.
• Unrecognized purchase: Often occurs if the company name appearing on the card statement is different from the store’s name.
• Customer dissatisfaction: When the buyer receives a product different from what they paid for.
• Fraud: Either from a notorious buyer – also known as “friendly fraud,” where legitimate customers use their names, addresses, and credit cards for online purchases with the intention of disputing with the credit card company to avoid payment – or when someone claims to be a victim of identity theft.

Chargeback Rates and Costs

On average, 2.59% of all transactions end in a chargeback dispute, which applies to all credit card providers (such as American Express, Discover, Mastercard, and Visa). Chargebacks cost online businesses $40 billion annually.

The Importance of Chargeback Rules

There are good reasons for banks and card networks to enforce chargeback rules. They are an important consumer protection feature, as there are some bad merchants attempting to exploit consumers by sending poor, counterfeit, or nonexistent products.

Merchant Responsibility for Chargebacks

Unfortunately, merchants have little protection when it comes to chargebacks. Most merchant rights related to chargebacks are reactive and aim to reduce losses. Here are eight of these rights you should be aware of:

• Chargebacks cover only the amount of the transaction and cannot exceed the original transaction amount. In some cases, certain shipping costs and additional fees may be included in the total chargeback amount.
• Chargebacks cannot cover cash transactions.
• The customer must attempt to return the merchandise before requesting a chargeback if the purchased goods arrive after the agreed-upon delivery date.
• Cardholder agreements require that the cardholder contact the merchant and attempt to resolve the issue before submitting a chargeback.
• If the customer returns an item, the card issuer must wait 15 calendar days to process the chargeback (unless the wait exceeds 15 days past the deadline for submitting the chargeback), to give merchants time to respond.
• Most cardholder agreements require consumers to submit a chargeback within a specified number of days.
• In most cases, every step in the chargeback process must be completed before moving to arbitration.
• You, as a merchant, have the right to dispute chargebacks through an arbitration process known as “chargeback representment.”

The Importance of Fighting Chargebacks

Of course, fighting chargebacks gives you the opportunity to reclaim lost revenue, but in some ways, it is a secondary result. Because the biggest reason for combating fraudulent chargeback attempts is strategic.

When merchants give in and accept fraudulent chargebacks because they cannot handle the hassle of fighting them, it encourages fraudsters and leads to more chargebacks.

Yes, fighting chargebacks takes time and effort. You will need to gather documentation to show that the original transaction was legitimate. But doing so will save you time and effort in the future, as you will face fewer and fewer chargebacks.

Strategically, you need to have a reputation as a merchant that resists chargeback claims, which will deter potential fraudsters from happily initiating a chargeback. Similarly, legitimate customers will be more likely to request a refund if it is quicker, easier, and more effective than going through the hassle of a disputed chargeback.

Fighting

Returned shipments also send a strong message to banks. Merchants who consistently dispute returned shipments will motivate banks not to accept return shipments automatically and instead do their due diligence. This will have a positive impact on the entire system, managing risks, increasing costs for merchants, and reducing fraud levels in the system.

How to Avoid Returned Shipments Before They Happen

The truth is that banks typically lean in favor of the cardholder at the expense of the merchant in disputes over returned shipments. For this reason, it is essential for merchants to have their purchases and transactions well-documented and in accordance with the rules set by card networks.

But what are your options to avoid returned shipments before they occur? Follow these general steps to prevent returned shipments and unnecessary inquiries:

• Verify suspicious orders before processing them.
• Inform customers in advance about your store’s policies.
• Ensure that your product or service images and descriptions are clear and accurate.
• Have a clear return policy and make it easy to find in your store.
• Make sure your billing statement text is easily recognizable to your customers. Use your store name or domain name so that the customer can recognize it on their credit card bill.
• Send electronic receipts upon payment to remind customers of what they paid for.
• Ensure refunds are given as promptly as possible.
• If a double shipment occurs by mistake, return the second shipment immediately and contact the customer directly to inform them of what happened.
• Respond quickly to your customers if they have any issues.
• If you are shipping physical goods to the United States, United Kingdom, or Canada, only ship products for orders that pass the AVS check. You can also contact the customer before shipping to an address that does not pass the AVS check.
• Ship products as soon as possible after collecting payment for the order.
• Estimate shipping and delivery dates as accurately as you can.
• If shipping is delayed, contact the customer and inform them of what is happening with their order.
• Once the package is shipped, keep customers informed about the shipping stages. Use online shipment tracking and delivery confirmation when possible, especially if you are working with a parcel delivery service.
• If you are shipping physical goods, make sure to package and ship your products in a way that protects them from damage during shipping.
• Respond quickly to your customers and replace damaged or defective products.
• If you offer subscription-based services, add an unsubscribe policy to your store.
• When a customer requests it, cancel their subscription immediately and provide them with confirmation of the cancellation.
• Make it clear on your subscription page that your customers agree to recurring shipments, and send them a reminder before each shipment.

How to Handle Returned Shipments Once They Occur

No matter how careful you are in following the above steps, you will eventually face at least some returned shipments. How should you deal with them when they happen?

One way is to ensure you have a strong trail of records proving that the purchases in question were legitimate. Part of the reason Shopify Payments is designed to work seamlessly with other services like Shop App and Shopify Shipping is that it can integrate the checkout, receipts, shipping, and tracking of parcels all in one place.

Since Shopify Payments comes with Automatic Dispute Resolution, it gathers a complete picture of each transaction and helps you win more disputes more frequently.

Shopify Payments works closely with the rest of your Shopify services to ensure the best chances of winning. Our Automatic Dispute Response, executed by integrating Shopify Payments and Shopify Shipping, increases your win rate from 20% to 37%: 17% of disputes turn from loss to win. This means doubling the number of wins: relative improvement of 85%, while reducing the effort required from you. In fact, Shopify Payments wins returned shipment disputes 45% more than its competitors.

Source:
https://www.shopify.com/enterprise/how-to-prevent-and-manage-chargebacks-as-a-merchant