How to Prevent Chargebacks

Chargebacks have become a prevalent and increasing concern for businesses of all shapes and sizes. Why? Chargebacks damage customer relationships, negatively impact revenue, and can jeopardize your ability to process payments successfully. The question to ask yourself moving forward is: How do I prevent chargebacks? 

By implementing the proper chargeback prevention steps, you can drastically decrease disputes. Knowing how to prevent chargebacks can effectively improve revenue and drive long-term sustainability for your company. 

In this article, we’ll dive into the tactics you can deploy to reduce and prevent chargebacks. Let’s explore.

Why Is Preventing Chargebacks Important?

Let’s face it: chargebacks are not exactly a topic business leaders like to spend their days thinking about. After all, the payment dispute process can be complex and a headache to wrap your mind around thoroughly. Often, consumer disputes only account for a small percentage of the overall sales, and dismissing these losses as simply “a cost of doing business” is easy. However, this mindset can be detrimental to your bottom line and your brand’s reputation.

In addition to revenue loss and absorbing the product costs, every dispute is also accompanied by ancillary expenses. These expenses span overhead costs – like fulfillment, customer acquisition, and shipping costs – as well as administrative fees and chargeback fees. Other sources responsible for revenue loss include return fraud and false declines. According to a LexisNexis study, every dollar lost to fraud will cost your business $3.60 in chargeback expenses. Over time, that amount can accumulate, causing catastrophic impacts on your bottom line. 

How to Prevent Chargebacks: What You Need to Know

Before tackling how to prevent chargebacks, it is imperative for your company to invest time in calculating your total chargeback costs. After all, you need to know where you’re starting to know what you’re aiming for!

Arming your organization with tangible numbers and insights will allow you to make a strong case for investing in the systems and people you may need to make improvements. Once you have a more accurate picture of your losses, consider the following steps. 

Would you enter the Indy 500 only to race in an old-school beaten-down Buick? Probably not. The same logic applies to following compliance standards and preventing chargebacks without the right technology in place, like an advanced warehouse management system (WMS). 

Paper-based processes are slow and vulnerable to human error. However, by implementing a WMS, you can utilize automation and reporting tools to facilitate distribution and data transfer tasks. With the right system in place, RFID and barcoding can be employed to strengthen accuracy and easily identify picking and shipping errors. 

Here at Smart Warehousing, our inventory management system ​​provides access to real-time inventory insights, transaction-level updates and a summary of all activity via our cloud-based technology.

In addition to early or late deliveries, incorrect or unreadable advance shipping notices (ASN) account for many chargebacks. By addressing potential ASN problems, your company can eliminate a good percentage of your chargeback issues. 

ASNs are by far the most important electronic data interchange (EDI) feeds businesses receive. For this reason, it is crucial to have access to real-time data surrounding products in transit, as this will empower your business to:

• Detect discrepancies between orders and shipments, and reallocate inventory as needed. 
• Proactively plan for receiving needs to decrease labor costs. 
• Cross-dock freight to accelerate the flow of goods and reduce storage costs. 

How to prevent chargebacks also relies on developing a robust auditing process. The goal is to implement a straightforward documentation process and perform a quality control check on a certain percentage of your outbound shipments. 

The auditing process typically includes:

• Ensuring labels are placed in the correct location. 
• Confirming labels have been applied to the right corresponding pallet or carton.
• Attaching the correct packing lists.
• Ensuring pallet instructions have been adhered to (including the user of shrink-wrap, pallet type used, configuration, etc.).

By partnering with a third-party logistics provider (3PL), you can leverage their technology and auditing process to strengthen your efforts in preventing chargebacks. You can request a copy of their auditing procedure and their internal scorecards against these audits. 

Preventing Chargebacks is Key to Driving Profit

Enforcing compliance standards and leveraging automation are both pivotal factors in preventing chargebacks. Many businesses partner with a reputable 3PL to leverage their wide-scale resources across the supply chain. In addition to fulfillment and distribution, 3PLs play a vital role in ensuring compliance. And let’s face it: for your organization to drive profit and customer loyalty, it’s crucial to have these processes ironed out and error-free. 

To learn more about how the Smart Warehousing team can help strengthen your supply chain and improve your bottom line, contact us today.