From a simple misunderstanding to an accidental human error, many businesses experience a customer dispute or complaint every so often. It can happen to a business of any size and in any industry.
Whether the customer claims their item was not received, or they declare the transaction was unauthorized or fraudulent, customer disputes are an inevitable part of running a business.
Instead of worrying about when you may face your next customer dispute, take a proactive approach by understanding the different types of disputes merchants can be faced with, including claims, chargebacks, and bank reversals. Plus, get helpful tips and strategies to manage and prevent them.
When a customer encounters a problem with a transaction, they can raise the issue with the seller by opening a dispute. The goal of the dispute process is to address issues before they escalate into a claim. It’s worthwhile for merchants to work with their customers to resolve disputes as it allows them to provide excellent customer service, solve the problem, and prevent it from worsening. It also helps businesses create loyal, long-term customer relationships and avoid negative reviews and potential legal issues.
Here’s an example: A customer purchases a rug from an online store. Upon receiving it, they notice a large stain along the left side. The customer contacts the company to request a refund or a replacement product. However, the company does not believe the product is damaged and refuses to provide a refund or replacement. Because the customer and the merchant cannot come to an agreement, the issue may be escalated to a claim.
Dispute management involves helping buyers and sellers arrive at a solution for a dispute that all parties agree with. The process can include identifying and addressing the issue, facilitating communication between the buyer and seller, and finding ways to resolve the dispute in a mutually satisfactory manner. Because every dispute is unique, solutions are likely to vary. Explore the dispute management process.
Disputes come in many different forms, though the most common include the following:
While a single dispute is unlikely to create a significant impact on your business, it’s important to keep a close eye on your overall claim rate. The more claims filed against your business, the higher the likelihood that your account could be reviewed, your balances could be affected, and reserves or limitations could be put in place.
Though disputes are sometimes unavoidable, there are steps you can take to better your odds of preventing them from occurring in the first place. Start by:
Explore more ways to help manage risk for your business.
When an agreement cannot be reached in a dispute between a buyer and seller, it can be escalated to a claim, in which the buyer requests a refund for the purchase from the payment processor. Buyers can also file claims (without first creating a dispute) if they suspect their account has experienced fraud.
What’s the difference between a dispute vs. claim? If a buyer dispute can’t be resolved, either party can escalate it to a claim. There is usually a 20-day period between when a buyer first opens a dispute and when it can be escalated to a claim. During this process, both the buyer and seller are typically asked to provide additional information before a decision from the payment processor can be reached.
Learn more about how to dispute a claim and resolving claims.
In addition to INRs and SNADs detailed above, another common reason for claims is due to a suspected unauthorized transaction. In other words, if the buyer's account was hacked or compromised, and someone made a purchase without the buyer's authorization, the account holder would be asked to file a claim. This type of complaint is resolved through the claims process, not via a dispute.
A chargeback occurs when a customer asks their card issuer to reverse a charge that they believe was unauthorized, fraudulent, or otherwise incorrect. The card issuer will then investigate the charge and determine whether to initiate the refund.
When a payment is reversed, the merchant usually is required to refund the customer's money and may also be subject to additional fees or penalties. It's important for merchants to have a clear and fair refund policy in place to help avoid chargebacks, and to be prepared to respond to them if they do occur.
Take a look at common reasons for chargebacks, including:
When it comes to chargebacks, it’s more important to prevent them than fight them. That’s because every chargeback affects your total chargeback ratio, which determines your standing with credit networks. The more chargebacks you receive as a seller, the higher the likelihood that you may be flagged as a higher-risk merchant.
Preventing chargebacks is similar to disputes and claims — you’ll want to maintain strong communication, ship orders promptly, and create a clear return and refund policy, among other strategies.
Learn more about chargebacks here.
A dispute is the initial step where a cardholder contests a transaction, typically due to issues such as unauthorized charges, product not received, or dissatisfaction with the product or service. A chargeback is the subsequent process initiated by the issuing bank if the dispute cannot be resolved between the customer and the merchant.
Disputing a transaction simply means the customer is questioning a charge on their account. Chargebacks, on the other hand, involve the actual reversal of funds from the merchant's account back to the customer.
If a merchant appeals a chargeback and wins, a chargeback reversal will occur – in which the issuing bank restores the funds back to the merchant.
A payment reversal, also known as an ACH return or bank reversal, is a request to cancel a transaction and return the funds to the original payment method. This request may be made by the customer or the bank and is often triggered by suspicions of unauthorized use of a bank account.
One of the best ways to prevent bank reversals is to review orders for signs of fraud or suspicious activity. Here are strategies you can leverage to identify and prevent potential risks:
Learn more about how to avoid reversals.
Looking for strategies to manage disputes, claims, and bank reversals? Check out these tips:
Though you can’t avoid experiencing a dispute, you can control how you respond to it. Below are four constructive communication tips:
Technically speaking, you can choose to respond to a dispute in a few different ways, including:
Learn more about resolving payment disputes.
Managing and preventing claims is similar to that of disputes. No matter the problem, creating and maintaining clear communication policies will increase your odds of avoiding or working through a claim successfully.
Understanding how to reduce payment reversals is key to managing and preventing them later. Here are some quick tips:
Learn more about managing bank reversals.
Sometimes experiencing a dispute or chargeback is unavoidable. Looking ahead, consider implementing safeguards to help protect your business in the future. As a friendly reminder:
You can also leverage PayPal for dispute and risk management. PayPal can help merchants manage fraud, reduce disputes, claims, and chargebacks, and expand their operations safely. Our fraud detection tools may also help you protect your business from existing and evolving threats. Browse more of our resources to help your business manage risk here.
In partnership with three expert business owners, the PayPal Bootcamp includes practical checklists and a short video loaded with tips to help take your business to the next level.