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How to prevent Online Chargebacks for your Restaurant or Business when using a Clover POS
When it comes to restaurant POS systems, Clover is one of the most popular options on the market. And for good reason - Clover provides a wealth of features and benefits that can help restaurateurs run their businesses more efficiently and effectively. However, with any type of payment processing system there is always the potential for chargebacks. This article will explore what are chargebacks, why they happen, and how you can prevent chargebacks, especially for Online Orders.
What is a Chargeback and the Chargeback Process
A chargeback occurs when a customer disputes a charge on their credit card statement. The customer contacts their credit card issuer and requests that the charge be reversed. The issuer then initiates an investigation into the disputed charge. If the issuer finds in favor of the customer, the funds for the transaction are returned to the customer's account and the merchant is responsible for paying any associated fees.
Chargebacks can happen whether a transaction happens in-store or Online. However, chargebacks happen more frequently for Online Orders because customers don't have to sign for their purchase, and there are no physical receipts.
Tell me the origins of Chargebacks and why do they happen?
There are many reasons why chargebacks can happen. The most common reasons include:
1. Fraudulent charges
2. Non-delivery of goods or services
3. Cancelled orders
4. Product not as described
5. Quality issues with products or services
Chargebacks for Online Orders
There are many reasons why a customer might initiate a chargeback. In some cases, the customer may not recognize the charge on their statement because it was made online or over the phone. In other cases, the customer may feel they were overcharged or that they did not receive the product or service they paid for. In some instances, chargebacks can happen because of fraud - either the customer's information was stolen and used to make a purchase without their knowledge, or the merchant may have processed a transaction without the customer's authorization.
Transactions that are performed Online are called "Card Not Present" transactions. This is because the customer's credit or debit card is not physically present at the time of purchase, so the merchant has to rely on other methods to verify that the cardholder is who they say they are. Banks typically charge higher credit card fees for card not present transactions as they pose a greater risk for chargebacks.
Different Type of Chargebacks - Friendly Chargebacks
There are a few different types of chargebacks that can happen with Online Orders. The most common type of chargeback is called a "Friendly Fraud" or a "Friendly Chargeback". This happens when a customer incorrectly claims that they did not authorize a transaction, or that they did not receive the goods or services that they paid for. It can also happen when a customer changes their mind after they make a purchase, or if they are not happy with the quality of the product or service. Friendly chargebacks are the easiest to prevent by offering clear instructions on your refund policy accurately displaying your business name on the receipts.
Another reason that Friendly Chargebacks happen is when a customer doesn't recognize your business name on their credit card statement. Therefore, it is important that your business name is similar or the same as what appears on your customers' credit or debit statements. For example, if the name of your restaurant is Anthony's Subshhop and the customer receives a charge on their credit card statement as "Tonys Sub" or "Anthonys LLC", they may dispute the charge, incorrectly thinking someone used their card at some other location.
Friendly chargebacks are much easier to resolve. Often a quick phone call to the customer can help remedy the situation.
Fraudulent Transactions - Identity Theft Chargeback
Another type of chargeback that can happen is called an "Identity Theft" chargeback. This happens when a customer's credit or debit card is stolen and used to make an Online Order without the cardholder's knowledge or permission. Identity theft chargebacks can be difficult to prevent as its intent is usually criminal fraud, but there are a few things you can do to reduce the risk, which we will discuss later in this article.
Authorization Chargeback on Credit Card Statement
There is also the "Authorization" chargeback. This happens when a customer claims that they did not give permission for a transaction to be processed on their card. Authorization chargebacks are more common with businesses that have recurring billing, such as subscription services. The best way to prevent this type of chargeback is by getting explicit permission from the cardholder before allowing their card to be charged on a subscription basis, and then keeping clear records of this permission.
Processing Error Chargeback
The last type of chargeback is called a "Processing Error" chargeback. This happens when there is an error in the way that the transaction was processed, such as if the wrong amount was charged, or if the wrong card was charged. Processing errors can also happen if the customer never received the product or service that they paid for. To prevent this type of chargeback, it is important to double-check all transactions before processing them, and to keep clear records of all transactions.
There are a few things that you can do to help prevent chargebacks from happening in the first place:
- Keep clear records of all transactions, including the customer's name and phone number
- Get explicit permission from the cardholder for recurring billing charges
- Offer clear instructions on your refund policy
- Make sure your business name is similar or the same as what appears on your customers' credit or debit statements
If a chargeback does happen, there are a few things that you can do to help resolve the situation:
- Contact the customer as soon as possible to try to resolve the issue
- Provide clear documentation of the transaction, including the customer's name, permission for recurring billing charges, and your refund policy
- Respond to the chargeback within the time frame allowed by your bank
Chargebacks can be a hassle for businesses, but by taking some preventative measures, you can reduce the risk of them happening.
What are the Difference between a chargeback and a refund
A chargeback and a refund are two different ways a customer can get back money from a purchase. A chargeback occurs when a customer contacts their bank and the banks disputes a charge on their behalf. This is usually done when they don't know the stores refund policy or can't get a hold of anyone at the business.
A refund is when a business owner, manager, or employee processes refund back from the business to the customer. This can be done either by returning the product or by contacting the business and requesting a refund. While both chargeback and a refund ultimately serves a similar purposes, a chargeback is more intrusive and comes with additional penalties.
Why doesn't my Online Ordering company cover the cost of my Chargebacks
Some Online Ordering companies do cover chargebacks such as Doordash, Grubhub, Uber Eats and many more. However, it comes at a cost. These companies will charge a hefty fee for all Online Orders in case a chargeback does happen. They know that a percentage of restaurants will get chargebacks, therefore, they have already increased their fees to cover themselves in the event of chargebacks. For example, you may have to pay Doordash 15% to 30% for Online Orders. Therefore, if you process $25,000 in Online Orders, and DoorDash fee ranges from $3,750 to $7,500 (Pick-Up or Delivery) for Online Orders. They will cover the chargeback as their fees include the possibility of chargebacks.
Please also keep in mind that some Online Ordering companies may only cover a limited number of chargebacks per restaurant. After that, the restaurant is responsible for any subsequent chargebacks. You may want to reach out to them for further info.
It's important to note that even if an Online Ordering company does cover the cost of a chargeback, the restaurant will still be required to provide documentation to the credit card company proving that the customer authorized the charges. If the restaurant is unable to provide this documentation, the credit card company may still hold the restaurant responsible for the charges.
The best way to avoid having to deal with chargebacks is to prevent them from happening in the first place. This can help you save money and time.
Why prevention is better than having expensive Online Ordering Companies cover your Chargebacks
The Online Ordering companies that do not charge hefty fees for Online Orders will not cover the cost of chargebacks.
This is actually not a bad thing.
In the long run you may actually save a lot of money by being pro-active rather than passively giving your money away.
This is because the companies that do not cover chargeback fees, have not marked up their prices significantly to cover such costs. Therefore, the savings will come back to you. For example, let's assume you received chargebacks for about $700 over the course of 30 days using Doordash. Often times, you may not even be aware that you got a chargeback as Doordash may have a team that responds to chargebacks. They may have got the $700 back to their account.
You may want to check with Doordash to learn who is responsible for responding to chargebacks.
Let's assume you received a fee from Doordash in the amount of $4,500 for Online Orders. You had a chargeback totaling $700
You still end up paying DoorDash $3,800.
$4,500-$700 = $3,800
The best way to avoid having to deal with chargebacks and paying increased fees is to prevent them from happening in the first place.
This can help you save money and time.
Let's suppose you took a more active approach and minimized or eliminated chargebacks by following the steps above and went with an Online Ordering company that doesn't charge hefty fees but provides customization to help minimize or mitigate chargebacks?
The potential savings could be huge.
One active approach to reduce or eliminate chargebacks is by displaying the following message on your Online Order page:
"We randomly check IDs for Online Orders to ensure order accuracy"
By being pro-active and helping safeguard your customers, you are also ensuring your customers that you are working hard that everyone is getting their correct orders. This can save you time, money, and ultimately your reputation.
I'm still getting some chargebacks, what tools can merchants use to avoid Chargebacks and disputes?
There currently isn't a 100% full proof method of completely eliminating chargebacks, however, If you are using a Clover Device, you can also use Clovers Built in "Fraud Tools" to help block transactions that don't meet your ordering criteria. For example, you can block transactions that exceed a certain dollar amount, or you can block transactions that are outside a specific zone. If you are using Branded App by Zaytech you can block specific customers with fraudulent intentions from Ordering Online.
The key is to take measures to minimize them as much as possible.
However, there will always be a small percentage of customers that will try to take advantage of the system.
Restaurants should mentally prepare that getting chargeback is part of doing business, just like how a kitchen equipment can break, or food can spoil.
These lost costs should be considered in advance so when a chargeback does happen, a kitchen equipment breaks, or when food spoils, the business owner is not shocked and loses their cool.
Rather, business owners and managers should learn from the experience, and takes active steps to help reduce it from happening it again.
Chargebacks happen for a variety of reasons such as not receiving the product they ordered, not being happy with the product they received, or simply not recognizing the charge on their statement.
=>There are several ways to prevent chargebacks from happening, such as displaying a message on your online order page that says you randomly check IDs for order accuracy, or by using Clover's built-in fraud tools to block transactions that don't meet your ordering criteria.
=>It's important to be pro-active in preventing chargebacks, because if they do occur, the restaurant is often responsible for covering the cost. This can be expensive and time-consuming.
=>By taking a few simple steps to prevent chargebacks from happening in the first place, restaurants can save money and hassle in the long run.
This article isn't intended to have your restaurant not use Delivery Ordering companies such as DoorDash, but to offer tips and advice and to help you understand that companies that don't offer chargeback protection isn't necessarily a bad thing.
They might actually be a better fit.
If you are looking to be more proactive, and save money on Pick-Up Orders, then we can help.
With a branded app, you can own your customers data so you can reach out to them for marketing, or to just respond to them, in case a chargeback does happen so you can quickly remedy the situation, then you may be interested in getting branded app built for your restaurant.
With a Branded App, you can save from paying hefty fees to companies that offer chargeback protection.
By owning your own branded app, with your logo, with your colors, (unique branding experience), you are builidng a personal relationship with your customers and remaining pro-active, and as a result, helping to reduce or eliminate chargebacks.