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Understanding What Happens During a Chargeback

Credit cards are being used more frequently than any other time before. Most brick-and-mortar businesses would financially suffer if they did not accept electronic payments. Many consumers do not carry cash and only pay for their purchases with plastic. For e-commerce businesses, having a merchant account is a definite must. To accept electronic payments, it is very important for all companies to have credit card processing equipment. Once this is done, business merchant accounts can then be created.

All companies with business merchant accounts will eventually have a customer file a chargeback complaint against them. They do this because they don’t agree with a transaction that has occurred with their bank. By doing this, they are requesting that their money be returned back to their bank or credit card.

It’s very important for a merchant to understand what exactly happens when a customer files a chargeback against them. As soon as the complaint is made, the funds are debited from the merchant’s bank account and usually placed in what is called an escrow account. The funds will remain there until the dispute is settled and a resolution has occurred.

The merchant will be notified of the chargeback and can accept the chargeback or dispute it by providing documentation that proves that the transaction was valid. If the merchant ignores the chargeback, or the documentation provided does not provide valid proof, the money is returned to the consumer, and the merchant is charged a fee. If the merchant is successful in defending the chargeback, the funds will be returned to their bank account. This is a good thing for the merchant, but it does not necessarily mean that the merchant will not have to pay any fees. For this reason, merchants never want to be notified of any chargebacks against them.

From a consumer point of view, having the right to file a chargeback is terrific. It protects them when they feel that they have been a victim of fraud, received an item that is not as described or received a damaged item. There are some customers that will try to abuse the chargeback system. Those who do this too often will many times be blacklisted by merchants. Con artists like this should never discourage a company from setting up their credit card processing equipment. They make up a very small percentage of customers, and their schemes are usually short lived.

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