Lesson 1: How Chargebacks Work
- A chargeback is a forced refund. The bank pulls the money before you get a say.
- The real cost beats the sale price. Add the fee, the product, and your time.
- Three causes: real fraud, something you got wrong, or a customer lying.
- Work to the date in your processor's notice. Visa, Mastercard and Amex allow 20 to 45 days for representment; Discover doesn't publish its window, and your processor can set an earlier date. Miss the deadline and you lose by default.
First of three lessons in Handling Your First Chargeback. For the full reference, see What Is a Chargeback?. Answering one right now? Go straight to Your First Chargeback.
A chargeback is a customer disputing a charge with their bank instead of asking you for a refund. The bank reverses it and the money leaves your account. Then you prove the charge was legitimate to get it back.
Your first chargeback feels alarming. It isn't. Every business gets them eventually. What matters is how you respond, and what you change after.
A chargeback costs you more than the sale was worth, and the transaction amount is only part of it.
The Real Cost of a Chargeback
A chargeback costs more than just the transaction amount:
| Cost | Typical Amount |
|---|---|
| Transaction amount | Whatever you sold |
| Chargeback fee | $0 to $30 per dispute, usually $15 |
| Product/shipping | Already gone if you shipped |
| Your time | 1-2 hours to respond |
| Ratio damage | Too many = account termination |
For a $50 chargeback, start with $50 + your actual dispute fee + (response hours x hourly cost). Record unrecovered goods separately. The table doesn't price those hours, so it can't establish a $100 total.
Why Chargebacks Happen
Customers file for all sorts of reasons, and they sort into three buckets.
- Fraud: the cardholder says they didn't authorize it, and they're right. Someone used a stolen card
- Merchant error: the customer has a real problem with the order.
- Billed the wrong amount
- Never got the goods
- The product wasn't as described
- Couldn't get a refund out of you
- Friendly fraud: the cardholder disputes a real charge to get it free, and it's growing fast. See friendly fraud for the detail.
The Chargeback Process
Here's what happens when a customer disputes a charge:
The timeline:
- The customer disputes with their bank
- The bank gives them a temporary refund
- Your processor pulls the money and tells you
- Respond by the date on your notice with evidence. Visa, Mastercard and Amex allow 20 to 45 days for representment; Discover doesn't publish its window, and your processor can set an earlier date.
- The bank decides who wins
Miss the deadline and you lose automatically. See chargeback lifecycle for the full process.