You’re happily growing your business—signing up new members and growing your draft—when, bam, you see a negative amount show on your merchant statement. You didn’t provide this member with a refund, so what could this be? Meet the dreaded and largely misunderstood, chargeback.
The process begins when your member “files a chargeback” – this means the cardholder notifies his or her bank of a transaction alleged to be in error. The cardholder’s bank usually has its own internal process for pre-screening a disputed charge, and, if the issuing bank finds the charge to be valid, the cardholder will be charged. If, however, the issuing bank finds sufficient evidence to support the cardholder’s claim, it will open a file, notify the merchant’s bank of its findings, and temporarily re-credit any disputed funds to the cardholder’s account pending the outcome of the dispute. The merchant bank will then do its own investigation. If the issuing bank approves the merchant bank’s findings, the cardholder loses, and he or she will be liable for the charges and any associated fees. If the issuing bank disagrees with the merchant bank’s findings, then the cardholder wins, and the recredited amounts will stick – the cardholder will not be liable for the charges.
What you need, more than anything, is documentation which tends to prove the legitimacy of a charge. This could include: 1) a signed and dated membership agreement showing the cardholder as the “buyer,” 2) a written notice of cancellation signed detailing the reasons for cancellation, 3) a checklist signed and dated by the cardholder showing receipt of legal agreements, 4) email correspondence between you and the cardholder regarding the substance of the disputed transaction, 5) the cardholder’s check-in history, 6) any notes in your club management system.
The more you can resolve through customer service channels, the less likely it will be that you get hit with chargebacks. Be thorough and complete in your approach to getting agreements signed. Make sure the name on the credit card used by your member or client to pay for services matches the name on the agreement. If you change your business practices you should notify all members in advance of the change and, in some cases, get signed agreement modifications or new agreements altogether. Make sure all documentation is legible, and that there are no blank spaces in contracts.
Chargebacks aren’t always fair, and the decisions made by the member’s issuing bank may not be just, either. Remember, even when you do everything right, there is always a chance a member will chargeback a payment and win. The goal is to limit the number of chargebacks you have to fight and if you do, to have a full arsenal of facts and documents at your disposal.