Chargebacks + Refund Management

Why this matters

Chargebacks (customer disputing a payment with their credit card company) are the most-expensive transaction failures in service business. Each chargeback that goes against you = full payment lost + chargeback fee + reputation damage with your processor (excessive chargeback rate = lost merchant account). Industry chargeback rate: 0.3 - 1.5% of transactions. Contractors with strong documentation win 70 - 90% of chargebacks; contractors without lose. This is the working framework.

Chargeback basics

A chargeback happens when a customer disputes a credit-card charge with their issuing bank:

• Bank temporarily reverses the charge
• Merchant (you) has 30 days to respond
• Bank decides: in favor of customer OR merchant
• Process takes 30 - 90 days total

Common reasons customers give:

• "I didn't authorize this charge"
• "The work wasn't done as promised"
• "I was charged more than agreed"
• "I returned/cancelled but wasn't refunded"
• "The work was substandard"

Some are legitimate; some are "friendly fraud" (customer trying to get free service); some are actual fraud (stolen card).

What you're up against

The chargeback system favors the customer initially:

• Bank refunds first; investigates later
• Customer doesn't have to prove anything to file
• 30-day clock starts when bank notifies you
• Documentation determines outcome

If you don't respond OR respond poorly: customer wins by default.

Prevention is everything

Before: detailed written estimate (customer signs); pre-work condition photos; verified contact.

During: progress photos; change orders signed by customer; unexpected issues communicated.

At completion: customer walkthrough; signed work-completion form; itemized invoice; payment receipt.

After: email invoice + photos; 24-hour "everything OK?" check; immediate concern resolution.

Documentation makes chargeback defense nearly automatic.

Receiving notice of chargeback

When you get a chargeback notice (usually email from your processor):

Within 24 hours:

• Acknowledge receipt internally
• Gather customer file
• Note the chargeback reason code
• Set internal response deadline (allow 5 - 7 days; not last-minute)

Build the response packet:

• Customer-signed estimate
• Customer-signed work completion form
• Itemized invoice
• Photos before/during/after
• Communications log (texts, emails)
• Any change-order signatures
• Customer signature receipt of work

The response submission

Where to submit:

• Through your payment processor (Stripe, Square, Worldpay, etc.)
• Some require online portal upload
• Some require email submission
• All have specific format requirements

What to include:

• Cover letter explaining the work
• All supporting documents
• Specific rebuttal to customer's claim

Format:

• Professional + factual (no emotional language)
• Reference the customer's claim directly
• "Customer states X; the documentation shows Y"
• Photographic evidence
• Customer signatures

Submit within 14 days:

• Even though you have 30 days, faster response is better
• Less time for customer to add to their narrative
• Processor sees you're organized

Outcome possibilities

Won (in your favor):

• Charge reverses back to you
• Customer's bank decides for the merchant
• Documentation usually determines

Lost (in customer's favor):

• You lose the original payment
• Plus chargeback fee
• Plus negative impact on chargeback ratio

Partial win:

• Sometimes resolution is a refund of part of the amount
• Bank's discretionary call

Most cases resolve in 30 - 90 days.

After-loss decisions

Lost a chargeback:

• Customer keeps the work + the money
• You owe the chargeback fee
• Reputation hit at processor

Considering small claims:

• File against customer for unpaid invoice
• Often: customer settles to avoid the proceeding
• Win rate higher than chargeback (more documentation review)

Not worth pursuing:

• Smaller amounts
• High legal effort
• Move on

Chargeback ratio thresholds

Your processor tracks:

• Chargeback count: total chargebacks per month
• Chargeback ratio: chargebacks / total transactions

Visa's thresholds:

• Below 0.65% = standard
• 0.65 - 0.9% = warned
• Above 0.9% = "Excessive Chargeback Program" = additional fees + potential account termination

MasterCard + Amex have similar tiers.

If you're approaching thresholds: aggressive prevention effort needed immediately.

Refunds (the proactive alternative)

Sometimes refunding is better than fighting a chargeback:

When refund makes sense:

• Customer's complaint is partially legitimate
• Smaller dollar amount
• Customer is repeat OR has high LTV
• Resolution preserves relationship

Refund process:

• Process within 3 - 5 business days
• Original payment method
• Customer notified
• CRM updated
• Document reason

Partial refund:

• For incomplete work
• Customer keeps the partial
• Reduces resentment

"Goodwill refund" decisions

Customer demands refund for work that was done correctly:

Evaluate:

• Is customer's expectation reasonable?
• Was scope clear before work?
• What's the dollar amount?
• What's their LTV?

Decision:

• If customer's expectation reasonable: refund
• If customer's expectation unreasonable: explain firmly + decline
• "Mrs. Smith, we delivered the work as quoted. I'm sorry it didn't meet your expectations, but the work was completed per the agreed scope."

Don't fold to threats. Don't be rigid when it's a relationship investment.

Friendly fraud reality

Some customers try to scam:

• Customer is actually happy with work
• Disputes charge anyway hoping for free service
• Common in: certain demographics, specific situations

Defense:

• Documentation; documentation; documentation
• Sometimes you'll lose
• Prevention via processor (some have fraud-protection features)
• Move on

High-risk scenarios

• Customer with bad processor history: higher dispute rate; extra documentation
• Out-of-state customer: service-area mismatch may signal fraud; verify identity
• Customer unhappy DURING work: resolve on-site, not after billing

Processor relationship

Build relationship with your payment processor:

• Designated rep / account manager
• Quick response to chargeback notices
• Educational resources
• Fraud protection options

Major processors: Stripe, Square, Worldpay, Adyen, Helcim, Heartland.

Each has merchant programs + chargeback management tools.

References

• Card network chargeback procedures (Visa, MasterCard, Amex)
• Payment processor chargeback documentation
• FTC consumer credit dispute rules (Fair Credit Billing Act)
• Manuall internal: Customer Complaint + Escalation Handling, Payment Processing and PCI Compliance Reference