For business owners using online payment processors like PayPal, Stripe, or Square, chargebacks from disputed customer transactions can severely disrupt cashflow if not handled properly.
When a customer disputes a charge with their bank or credit card company, the bank typically sides with the customer first. The payment processor will then “claw back” the funds from your account until an investigation takes place.
This can happen without warning – you may wake up to funds being unexpectedly held by the processor for an indeterminate period. Chargebacks tie up cash you were counting on, creating major liquidity issues.
To minimize chargebacks and successfully win disputes:
Document all sales, especially larger transactions. Have customers sign agreements specifying payment terms.
Alert processors if you legitimately conduct business abroad. Foreign transactions often trigger fraud alerts.
Vet higher-risk customers carefully, like those in nightlife/leisure industries where card fraud is more prevalent. Verify IDs match cards used.
The more chargebacks hit your account, the worse your reputation becomes with processors. This may lead to holding periods on payouts or even termination of services.
Take proactive steps to validate transactions, disclose international activities, and screen clients. Proper documentation also strengthens your case in dispute investigations with the processor.
Stay vigilant with online payments – chargebacks can cripple your cashflow if not managed correctly as a merchant!
