The content of this article is provided for informational purposes only. You should always obtain independent business, tax, financial, and legal advice before making any business decision.
For most transactions, both parties get what they want: The customer receives the item they purchase, while the business earns revenue. However, on occasion, there will be a payment dispute.
Whether due to a mistake or a misunderstanding, you need to know how to respond and resolve disputes effectively, so they don’t cost your business money or lead to a lost customer.
Payment disputes, also known as chargebacks, occur when a customer contacts the company they used to make a purchase to ask that a transaction get canceled. If a dispute is successful, your business loses the revenue you thought you earned, even if you have already sent out a product or completed a service.
What is a dispute example? A common dispute is a customer who claims the item they received in the mail has been damaged during delivery. If the merchant can't resolve the issue, the customer might then contact their credit card company to dispute the charge. The credit card company could then issue a chargeback to the merchant's account, taking the money back from the merchant.
Dispute management refers to the process of how disputes work. It’s focused on identifying the customer complaint, gathering evidence, facilitating the communication between the merchant and the customer in an attempt to negotiate a resolution, and making a decision about whether or not to issue a chargeback.
The world of ecommerce provides plenty of opportunities for disputes. Many are the result of a package never arriving or an item being significantly different than what was promised on the product page.
Because online merchants don't see a physical card, they are also at risk of fraudsters using stolen cards to buy goods, which may only be discovered weeks later when the cardholder gets their monthly statement.
While payment disputes with customers are relatively rare, they can have a significant impact on your bottom line in terms of lost revenue and wasted time gathering documentation and responding to issues.
What’s more, a payment dispute can damage your customer relationship — not to mention your brand reputation should the customer share their story on social media or on review sites.
Keep in mind that a high chargeback rate can cause your account to get flagged as high risk, which may result in the payment processor charging you higher fees or limiting your ability to accept payments.
Different types of dispute resolution will depend on the dispute that needs to be resolved. Most disputes are due to one of the following:
The steps for resolving disputes are the same regardless of the reason for the dispute or the payment network overseeing the process:
The best way to resolve a dispute is to avoid one in the first place. A customer will most likely contact your business first to resolve an issue before their payment company. Use this opportunity to resolve the issue to everyone's satisfaction so they don't escalate it to the payment processor, which can cost you extra time and money to litigate.
Here are some tips for responding to a dispute based on the specific issue.
Porch pirates will often steal a package off a customer's front doormat, causing the customer to complain that they never received the item.
To protect yourself against item not arrived complaints, get proof of delivery from the shipping company you use. The proof of delivery will not only show that the package was delivered but also when and where it was delivered. For high-value items, consider requiring signature confirmation so you can prove it was accepted.
Tangible goods, meaning anything that is physical, should be sent with proof of delivery as noted above. If you receive a dispute before the item is shipped, hold off on the shipment until you can clear things up with the customer, which may include offering a refund.
If the dispute is due to an error such as sending the wrong product or a damaged item, work with the customer to return the item while getting the right item out to them.
Intangible product examples are things like digital items, event tickets, or services. For these types of items, keep careful records of how you deliver them, such as when it is emailed or downloaded by a customer.
Also known as Item Not as Described, the easiest way to avoid these disputes is to have product page content that includes all the information a customer needs to know what they are getting. Make sure descriptions are accurate and complete and have photos of the item from every angle.
When it comes to disputes, evidence is key. When you receive notification of a dispute, provide all the evidence you have as quickly as possible. Evidence can include proof of delivery, signed invoices, email correspondence, product descriptions, and receipts.
Ideally, the customer and your business can work together to resolve the issue without involving the payment processor. This is often a fast, most cost-effective solution, as it doesn't require your staff to spend hours collecting paperwork and responding to the payment processor. But if you do need to respond to a dispute, here are a few tips to keep in mind.
No two disputes are the same. Depending on the size of the charge and your evidence, your dispute response options include:
There are actions you can take to prevent disputes in the first place, saving you time, money, and customer frustration. Below are important dispute prevention tips to help you manage risk.
Customers and merchants should try to work together to resolve a dispute on their own. However, either party can escalate a dispute into a formal claim at any time. At this point, the payment processor then becomes directly involved, taking matters out of your hands. Read more about how the claims process for PayPal works.
PayPal works with buyers and sellers to help resolve disputes and minimize losses. Learn more about the PayPal dispute resolution process.
In partnership with three expert business owners, the PayPal Bootcamp includes practical checklists and a short video loaded with tips to help take your business to the next level.
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