Payment Disputes

Chargebacks and ACH returns are both kinds of payment disputes that result in a negative action, and can impact your bottom line and ability to accept certain payment methods. This guide covers the basics of what you need to know about chargebacks and ACH returns.

​

Chargebacks

A chargeback provides cardholders with a way to dispute a transaction with a merchant (paypoint in Payabli). Chargebacks happen for several reasons, including:

• Fraudulent transactions
• Shipping, delivery, or pricing issues
• Credit or refund not processed
• Unsatisfied with product or service purchased
• Duplicate charges
• Unrecognizable business name on credit card statement

The credit card networks set the chargeback rules, while processors, acquirers, and merchant processing providers set fee schedules for chargebacks.

In addition to chargebacks, an issuing bank can also initiate a retrieval request, in which the bank asks for more information about a transaction. Not all retrieval requests turn into chargebacks, but if a merchant doesn’t respond in time or the documentation they offer isn’t satisfactory, the issuer will open a chargeback.

An important difference between a chargeback and a retrieval request is that funds aren’t withdrawn from the merchant when a retrieval request is initiated. Processors charge a fee for both retrieval requests and chargebacks, even if the merchant wins the dispute.

​

The basic chargeback process

The chargeback process works like this:

1. The cardholder contacts the issuing bank and disputes a transaction.
2. A chargeback is initiated and posted to the processor and merchant. The funds are immediately credited back to the cardholder by the issuer and the merchant’s account is debited immediately for the chargeback amount. The chargeback fee is debited at end of month billing.
3. The processor requests documentation related to the transaction from the merchant. If the merchant has decided to defend themselves, the merchant provides the documentation, and the processor forwards it to the issuer. They can also accept the chargeback by not defending it.
4. The issuer weighs the evidence and decides in the cardholder or merchant’s favor and updates the chargeback status.

Now, let’s explain this process in more detail:

When a cardholder disputes a transaction, the issuer requests documentation to validate the transaction in question. The information that the cardholder gives to the chargeback representative at the issuing bank determines the dispute code chosen and the documentation needed to defend it, initiating a retrieval request.

If a chargeback is initiated, the issuing bank posts the chargeback to the processor and merchant. If the merchant chooses to challenge the chargeback, they can submit evidence that proves the validity of the original transaction. The processor requests any supporting documentation related to the transaction from the merchant, and then forwards the provided documentation to the issuer.

After they receive the documentation, the issuing bank determines if the evidence is strong enough to support the merchant’s defense. If the evidence is strong enough, the issuer decides in the merchant’s favor and updates the chargeback status. If the evidence isn’t strong enough, the issuing bank and merchant may initiate the process of arbitration, where both parties will make their argument with the card networks. At this stage, the issuer may charge a fee to both parties. When the issuer has decided in favor of the cardholder or merchant, they contact both parties with the final decision.

​

Why chargebacks matter

You should take steps to keep your chargebacks low for several reasons.

• Merchants are charged a fee of between $10 and $15 for each retrieval request. If a retrieval request becomes a chargeback, there is another fee of $25 or higher. Each processor, acquirer, and merchant processing provider has their own fee schedule.
• If you lose the dispute, the issuer charges you the amount of the original transaction. This means that you lose money, and time. Even if you win the dispute, you still have to pay the chargeback fees.
• You can have a certain number of chargebacks in a month. These limits are both a count threshold and a percentage threshold. For example, Visa and MasterCard have a count threshold of 75 chargebacks per month, and chargebacks must amount to less than 2% of your monthly volume. If you go over these limits, you enter the issuer’s “chargeback program” and you have 3 months to lower your chargeback counts and volume. The program includes large fines, and if you continue to go over the chargeback limits, you will lose the privilege of accepting cards from that issuer.

​

Handling chargebacks

It’s crucial that you respond to chargebacks within 10 days from chargeback date by doing one of the following:

• Responding to the chargeback via PartnerHub or PayHub. You should send a detailed rebuttal addressing all claims and whether you issued a full or partial credit. If you issued partial credit, explain why. Include as much documentation as possible including signed invoices or receipts, photos, written correspondences, and so on to defend your case.
• POST response to Chargeback or Return
• Ask the paypoint call the Payabli Chargeback Hotline at 213-282-7272 extension 2 to have a support representative help them with the process.

The chargeback process can differ between payment processors, but it traditionally takes between 60 and 90 days to resolve a chargeback fully.

​

Chargeback documentation recommendations

• If the transaction occurred in a card-present environment, submit a copy of the receipt showing card was chip-read or swiped.
• If the card was manually entered, you will need to show a signed receipt providing authorization of the transaction.
• If the transaction was already refunded, you can provide documentation that the refund was successfully processed.
• For digital authorizations (invoices or online payments), you can provide a copy of the invoice, as well as the digitally signed contract.
• If the cardholder agrees to withdraw the chargeback, you can include a letter or email from the cardholder stating they no longer dispute the transaction.

​

Preventing chargebacks

You can take steps to help lower your risk of chargebacks. First, give stellar customer service. Be prompt in responding to customer emails and calls, and be willing to work with them to make them happy. For example, if the customer wants a refund, but you don’t want to give them one, find some other way to make them happy. You want to prevent them from opening a dispute the charge with their card issuer.

Second, keep good records! Keep documentation of every interaction you have with a customer. This documentation can make the difference in whether you lose or win a dispute.

Other tips for avoiding chargebacks include:

• If the authorization request was declined, don’t try to make another authorization. Wait at least 24 hours before reattempting the transaction.
• Always obtain cardholder signatures.
• Refund any duplicate or incorrectly entered transactions immediately.
• Disclose your return, refund, or cancellation policies to the cardholder at the time of transaction by including it on the receipt or invoice. Obtain confirmation of acknowledgment of these policies.
• Process refunds quickly to prevent customers from opening an dispute.
• Respond to requests to cancel recurring payments immediately.
• For services rendered, having photographic evidence can be used as supporting documentation in a dispute.

​

Card brand reason codes references

Each card brand has its own set of chargeback reason codes.

​

Visa

These are the return codes for Visa codes.

​

MasterCard

These are the reason codes for MasterCard cards.

​

AMEX

These are the chargeback reason codes for American Express cards.

​

Discover

These are the chargeback reason codes for Discover cards.

​

ACH disputes

Disputes happen when a customer’s bank reverses an ACH debit for reasons like an unauthorized or duplicated transaction, or the wrong amount. ACH disputes work like ACH returns, but they’re similar to credit card chargebacks. This is because the customer disputes the transaction and involves their financial institution to recover their funds from the merchant.

Unfortunately, there’s nothing Payabli can do to help with an ACH dispute, and banks typically side with the customer. There’s no formal process for dispute resolution available to you as a merchant within the ACH Network.

Disputes are a type of ACH return identified by one of these return codes: R05, R07, R10, R29. See ACH Return Codes for full descriptions of each of these codes.

​

Handling an ACH dispute

When a customer opens an ACH dispute, you receive an ACH return with one of the dispute-related codes. The funds are automatically taken from your account and returned to the customer’s account, and like with other returns and chargebacks, you are charged an ACH dispute fee.

Although there isn’t much you can do as a merchant in a dispute, you should immediately suspend any recurring payment schedules for the bank account. This prevents other transactions from being returned while you address the issue with the customer. Contact the customer and resolve any issues that caused them to dispute the transaction.

If you think the dispute was in error, you can reach out to the customer and ask them to retract the dispute with the bank. If you do this, get written authorization from the customer before charging them again.

If the customer claims the transaction wasn’t authorized, but you have proof that it was correctly authorized, you may consider small claims court as a last resort. You can help protect yourself in an ACH disputes by getting written authorization for a transaction, and offering detailed receipts. Written authorization could be a signed agreement, a confirmation email, or a clear agreement they must check during checkout. Every receipt should include the date, the sale amount, the sale description, and contact information.

However, there’s no guarantee that you’ll recover the money, and be aware that Payabli doesn’t participate in the small claims process. Seek legal advice if you want to go this route.

​

ACH returns

ACH transfers are electronic, bank-to-bank money transfers processed through the Automated Clearing House Network.

An ACH return is a message from the check writer’s bank that lets the ODFI (Originating Depository Financial Institution) know the ACH Network couldn’t make the deposit or collect funds from the receiver’s account (RDFI- Receiving Depository Financial Institution). Typically, an ACH return comes from the RDFI, but in some instances the ODFI or even the ACH operator itself might send a message.

Returns can happen for several reasons, and ACH return codes help identify why an ACH was returned. You can refer to the ACH Return Codes table for a full list of the various codes.

​

Handling ACH returns

How you handle a return depends on the ACH return code. ACH Returns should complete within 2 banking days. However, some returns may take up to 60 days for the RDFI to initiate the return. The paypoint should contact the customer to address why the return happened and request that the customer contact their bank to have the transaction to go through. The ACH Return Codes table gives more details on how to handle each kind of ACH return.

It’s important that paypoints limit their ACH Returns to certain thresholds:

• Administrative Returns: Must stay below 3% for a rolling 60 day period.
• Unauthorized Returns: Must stay below .5% for a rolling 60 day period.
• Overall Returns must stay below 15% for a rolling 60 day period.

​

Chargebacks and ACH return statuses

If you work with chargebacks or ACH returns via the Payabli API, you can check the status in the response data as Status. For example, "Status": 0 means that the chargeback is open.