When it come stop running a business it is vitally important that you not only seek to drive for sales, profits and ultimately growth, but also that you are giving real focus to the things that are costing your business. Businesses live and die based on their bottom line and if you want yours to look good then there is equal importance to be placed on reducing the costs of your business as there is in increasing revenue.
One such area that costs many businesses a great deal of money that often goes ignored is that of chargebacks, considered wrongly by many as ‘the cost of doing business,’ these chargebacks can in fact to a great deal of damage to business and can, with a smart approach, actually be a fixable problem. Let’s take a look then at what chargebacks are, how they hurt the business and what you can do about them.
What Are Chargebacks?
At the basic level, chargebacks are transactions which are disputed by credit card providers, customers and buyers. More often than not these are done fraudulently and the merchant provider who receives the customers claim, will give the customer their money back. The reason this hurts businesses is because of the fraudulent nature of the claim, the customer gets their money back, despite having received their product and you, the business, get hit with the fees. Chargebacks are intended to protect comers from unauthorized transactions and whilst this can help many, the unscrupulous of this World take advantage of the process.
How Does This Damage Business?
Chargebacks can damage businesses in many ways and experts have suggested that there is a cost of $308 attached to every $100 worth of chargebacks. This figure is made up collectively of many factors of the chargeback process which are as follows:
– Direct cost of the lost sale and the profit that goes with it
– Cost of shipping outbound and potentially inbound depending on return conditions
– Packaging materials and handling
– Processing time of handling and writing off stock
– Lost goods which cannot be resold
– Manufacturing costs of goods
– Training time to teach the process of chargeback management
– Potential suspension of trading after repeated chargebacks
– Time spent negotiating with banks and merchants
Who is at Risk?
Digital services are far more at risk than brick and mortar businesses, especially if they are selling software or online solutions. The reason why these companies are more at risk is that there is less ability to prove that a particular product or service was ever received. In truth, chargebacks represent a danger for most product-selling businesses and even more so if those businesses are selling low-value goods. Physical goods may be easier to trace but that does not make the chargeback process any less troublesome for businesses.
How Can You Fix The Problem?
Despite the problem that chargebacks present there are ways in which you can prevent chargebacks from occurring in the first place or claim back chargebacks that were incorrect. Regarding prevention the best course of action is to have a logging and receipt system that is of a very high level and which cannot be contested. If you are selling high value goods then you should send products via recorded delivery that require a signature from the receiver. The final preventative method which you should look to be installing is that you are doing business under the actual name of your company, when customers see payments that are made to subsidiary company, this is often one of the things which they will take advantage of. Protect yourself as best you can and if you see a chargeback then contest it right away.