Disputes | B2B Finance Glossary

What Is a Dispute?

A dispute results from a cardholder contacting his or her issuing bank and asking for a refund for a purchase. Disputes are features of the Visa, Mastercard, and American Express card networks, and they help ensure cardholders can be better protected from fraud.

Why Do Disputes Occur?

Customers typically file for a dispute when they think a payment is fraudulent. However, sometimes customers file disputes because they don’t recognize the charge, feel that the company did not deliver the product or service promised, or are doing something unethical, such as claiming not to recognize the charge even when they agreed to pay.

Here are a few of the most common reasons for disputes:

• The payment was fraudulent. If the customer claims that they did not authorize the purchase, fraud has occurred: somehow, the customer’s card information was stolen and used without their knowledge and consent.
• The payment was not as described. If customers never receive the products or services they pay for or are delivered differently than they were told, they are entitled to file a dispute.
• The customer did not recognize the payment. If customers do not recognize a charge on their bank statement, they will likely think it is fraudulent. As a result, they will dispute the charge.
• An admin error was committed. Admin errors such as duplicate billing, incorrect billing amounts, or refunds that were never issued can occur and cause a dispute to be initiated.

What Does the Dispute Process Look Like?

If customers find unrecognized or fraudulent charges on their accounts, they will contact their issuing banks (the banks that issued them their credit cards). This is what initiates the dispute process. The card networks usually allow cardholders to initiate disputes within 120 days of the original payment, but this time frame is not always rigid. For example, for industries like travel and ticketing, where the payment is usually made far in advance before the event occurs, the 120-day period to file the dispute will usually happen when the event or travel occurs, not when the payment was made.

Once customers file a dispute, they will have to show evidence to their issuing bank that they were unaware of the charge or that the charge was fraudulent. Following this, the business associated with the disputed charge will have a limited time – usually seven to twenty-one days, depending on their card network – to respond to the card issuer’s claim. The business will also be required to offer evidence to the issuing bank to prove that the customer intended to pay for the product or service that the charge reflects.

If the business cannot provide enough evidence to support that the customer intended to make the purchase, a chargeback will occur: the bank will refund the customer’s purchase and then charge the business for the work it takes to complete this process – this is what’s known as the chargeback fee. If the business can prove that the customer intended to make the payment, the business will not lose the funds to the customer; however, the business will still incur the chargeback fee.

Businesses want to avoid chargebacks at all costs – they cost penalties that drain companies' revenue. If companies start to see high volumes of chargebacks, they will have a more challenging time accessing payment processing services at a reasonable rate.

However, it’s important to note that 86% of all chargebacks stem from intentional or unintentional fraud. As a result, merchants need to understand this fact and take preventative measures to prevent disputes and the chargebacks and chargeback fees that come along with them.

How Can Businesses Prevent Disputes?

Businesses that proactively find ways to prevent disputes can avoid chargebacks and their associated fees. Here are a few things you can do to prevent unnecessary loss of funds:

Use Multi-Layered Payment Protocols

You can better prevent fraud at checkout by taking a multilayer approach that uses chargeback prevention alerts, order validation tools, shipping and billing address confirmations, buyer velocity limits for purchases, email verification methods, device fingerprinting, and more.

Analyze Your Chargeback Data

Your POS system can provide data that allows you to identify trends that might indicate fraud from customers and employees. Some POS systems offer advanced features such as fraud prevention and monitoring tools.

Additionally, chargeback management platforms with real-time reporting provide alerts to let you know about potential problems and even review your transaction data for deeper insights.

Create a Transparent Shipping and Billing Process

To avoid disputes from customers who claim that they never received their shipment, your business can enlist tracking information providers to prove that items successfully reached their destination.

You can also offer enhanced shipment options, update your customers about shipping delays, and alert them about items taking longer to ship because they are currently out of stock.

Properly Manage Customer Expectations

Make sure to communicate with your customers so that they understand what the delivery time is for their products and services. On top of that, how your business’s products are advertised must reflect the actual quality of the product you're selling.  This way, your customers know exactly what they are purchasing and when they will receive it. They’ll be much less likely to file a dispute because their expectations will match their reality.

Train Your Staff on Best Practices

Training your employees who work with customer transactions or handle customer service should help the company avoid chargebacks. These employees should learn how to recognize suspicious transactions, verify signatures, and have a system for collecting evidence to prepare for future disputes.

On top of that, team members need to ensure that they respond quickly to dissatisfied customers to avoid disputes; however, if a dispute does ensue, employees need to respond to the issuing bank as soon as possible to try to mitigate the loss of funds.

Make Your Return And Dispute Processes Clear And Easy

Many customers will often file a dispute with their card issuer instead of contacting the business from which the charge comes. By making it easy for your customers to contact you and discuss any questionable fees, you can avoid the chargeback process and associated fees. You can do a few simple things like adding a FAQ page to your website that explicitly addresses returns, following up with your customers after purchases, automating your return process, providing free shipping for returns, and offering 24/7 customer service.