Knowledge Center

Knowledge Center > Billing and Payments > Payment Operations > Refunds > Managing Chargebacks

Managing Chargebacks

Reasons for Chargebacks

The most common reason for chargebacks include:

  • Quality: Customer claims to have never received the goods as promised at the time of purchase; customer was shipped an item that was very different from the seller's description, or the item was damaged when the buyer received it.
  • Fraud: Customer claims they did not authorize the purchase, they did not make the purchase, or they were a victim of identity or credit card theft

Chargebacks are designed to protect customers, however, some customers will abuse the chargeback system by habitually requesting chargebacks. Chargebacks can have negative impacts to the customer and merchant. A customer requesting many chargebacks may be blacklisted by merchants and a high number of chargeback both the customer and the merchant, causing customers to be blacklisted by merchants, and merchants with a high chargeback status will incur chargeback transaction fees. The period of time for which the customer can request a charge back varies by the card issuing banks or networks; some will allow chargebacks for up to a few weeks to months after a purchase was made.

Chargeback Process

When a chargeback occurs, the funds are returned to the customer and the chargeback amount is debited from the merchant's bank account (and may be placed in an escrow account) until the dispute process is complete. Merchants are notified of charge backs, often via email by their payment gateway, and can either accept or dispute the chargeback by providing documentation that the charge is valid. If the merchant wins the chargeback dispute, the chargeback amount debited from the merchant's account is returned. If the dispute is lost or the chargeback is undisputed, the funds are not returned to the merchant. Chargebacks are costly to the merchant as merchants may be charged a fine, which is a fee equivalent to a % of the chargeback amount. Even if the merchant wins a dispute, they may be subject to additional fees for retrieval of the chargeback amount, therefore, it may be helpful to speak with your merchant bank and processor regarding any potential fees incurred with chargebacks. Merchants are inclined to dispute chargebacks to not only recover funds, but also to avoid such fees and protect their reputation as a seller.

How are chargebacks handled in Zuora?

When a chargeback occurs, an amount equivalent to the chargeback is either removed from the merchant's bank account or such funds are put on hold and cannot be used by the merchant. In this case, Zuora recommends that you (as the merchant) model the chargeback in Zuora by creating an external refund

Applying a refund opens up the invoice and the invoice can be picked up and processed for payment again in the next payment run. Therefore, you may consider disabling auto-pay for the account so this does not occur. 

Once the chargeback dispute process is complete, if the dispute is won then you will create an external payment in Zuora to model the receipt of funds. If the dispute is lost or the chargeback is undisputed, and you do not expect to receive payment from the customer, you should create an invoice item adjustment to write off the invoice for non-payment.

When creating an external refund and/or adjustment, you can track the reason for the refund or adjustment using a custom field (for example, the custom field can include an option called "chargeback"). Custom fields can also be used to track details on the chargeback within Zuora.

Once a customer initiates a chargeback and the invoice remains unpaid, you should consider whether you will suspend or cancel the customer's access to your service, as well as stop billing the customer for such services. To discontinue billing the customer, you can cancel their subscription (and also their account) in Zuora.

Processing a chargeback in Zuora

To process a chargeback in Zuora:

  1. Find the payment being charged back or the invoice which the payment was applied to.
  2. Open the payment record.
  3. Refund the payment. Select External Refund because the refund (chargeback) was done outside of Zuora.
  4. Adjust all invoice items to $0 so that Zuora will not try to collect on this invoice again.

Additional Resources

For more information on chargebacks, here are some resources from some of the gateways supported by Zuora:

CyberSource

PayPal

Chase Paymentech

Vantiv

Also see How do I prevent/reduce chargebacks? for information about what you can do to reduce chargebacks in Zuora. 

Last modified

Tags

Classifications

(not set)