You’ve just spotted a chargeback on your business account’s bank statement. You’re confused. Maybe you’re a bit annoyed. 

It’s not a great feeling, is it? You don’t know why money has been taken from your account, and you want a payment dispute resolution—fast. 

This guide will help you get there. 

First, we’ll give you the lowdown on chargebacks and payment disputes. What are they? Why do they happen? 

Then, we’ll detail the reasons behind chargebacks and disputes. 

We’ll walk you through the payment dispute resolution process step by step. This includes how to submit a response and what to say to your clients. 

We’ll share some ideas you can use to prevent chargebacks from happening. And finally, we’ll offer four best practices. 

Payment disputes can have a domino effect of less-than-desirable consequences. Here’s what you need to know. 

Understanding Chargebacks and Payment Disputes 

A chargeback happens when a payment made by a customer is reversed. It’s a process controlled by their bank or credit card provider. It takes the funds from your account and returns them to their account. 

Chargebacks usually occur when a customer disputes a payment. There are several reasons this might happen: 

• The customer feels like a product or service didn’t meet their expectations. 
• The bank flagged the transaction as fraudulent. 
• There was an error in the payment processing. 
• The customer might not recognize the charge on their statement. 

We’ll explore these reasons in more detail below. For now, it’s important to understand chargebacks can be costly for small businesses: 

• They result in lost revenue. You performed a service or delivered a product. But, because of the chargeback, you don’t get paid for it. 
• You might have to pay fees to process the chargeback. 
• Multiple chargebacks can damage your reputation. It can also affect the status of your merchant account. Your payment processor might flag your account. In some cases, they might put limits or controls in place. 

FROM ONE OF OUR PARTNERS: The Credit Card Chargeback: Merchant Rights You Should Know 
 

Common Reasons for Chargebacks and Payment Disputes 

Here are some of the most common reasons you might experience a chargeback following a payment dispute. 

The Transaction Was Fraudulent 

Payment fraud is a growing problem. In the ’23–’24 fiscal year, the US Department of the Treasury prevented more than $4 billion in fraud. 

If a bank or credit card provider identifies a fraudulent transaction, they’ll reverse the charge. This makes sure the cardholder gets their funds back. 

In some cases, the charge was not authorized by the cardholder. But in other cases, it’s a matter of misunderstanding. Your client might not recognize your business name on their bank statement. So, they might think it’s malicious.  

Your Customer Wasn’t Satisfied 

Your client feels like they didn’t get what they paid for. So, they want their money back. 

Your client might feel this was for a number of reasons. Maybe you overpromised and underdelivered. Or perhaps the quality of work provided wasn’t up to scratch. 

There Was an Error in the Payment Processing 

A payment dispute can be caused by something as simple as a typo. 

Small mistakes can result in your client paying more than needed. They might then request a chargeback or refund for the extra amount. 

While this isn’t the end of the world, it doesn’t leave the best impression. Errors can make your business look unprofessional, especially if they happen more than once. 

You can mitigate the risk of payment processing errors by using reliable invoicing software. It should integrate with your accounting system, too. That way, all data is accurate and up to date. 

There Was a Miscommunication 

When it comes time to pay, your client relies on the documentation you give them. Your invoice, for example, should explain how much is due. It should also outline how to pay the amount. 

If your payment terms are confusing, vague, or non-existent, your client might not pay the right amount. They might miss the due date or pay to the wrong place. 

This is by no fault of their own. Instead, it comes down to poor communication. 

RELATED ARTICLE: How to Accept Payments Online (Credit, ACH, PayPal, QR Codes+) 
 

5 Steps for Payment Dispute Resolution as a Business Owner 

Payment disputes aren’t ideal, but sometimes they happen. The best thing you can do when payment disputes come up is work quickly to resolve them. 

Here are the practical steps you can follow. 

Step 1: Get Back to Your Client Immediately 

Let’s say your client sends you an email. They’re not happy with your service and have requested a chargeback from their bank. 

You’re frustrated. But now’s not the time to express your emotions. It’s also not wise to stay silent. Instead, you want to send a thoughtful and strategic response. 

For example, you might apologize for their experience and offer to redo or rectify the service. Fixing the problem could help you avoid a chargeback. 

Yes, it’s a little extra effort on your behalf. But it could turn an unhappy customer into a loyal one. 

That’s just one scenario. What if your client believes the payment was unauthorized? 

You might respond by reassuring them. Explain your secure payment process. Let them know that you will investigate the issue right away. 

Show that you’re proactive. You’re ready to dive in and resolve the matter before it escalates. 

Step 2: Collect Documentation Related to the Payment 

Next, you want to gather the documentation connected to the payment. This includes: 

• Documents that prove the transaction took place, like receipts, invoices, emails, or text messages. These should detail the payment data, agreed-upon terms, the amount paid, and where it was paid. 
• Communication with the client, including emails, texts, and even call logs if you have them. 
• Proof that you delivered the service or product. 
• Your refund policy. 

These documents will support your side of the story. 

Hopefully, the dispute will be resolved quickly and without any further disagreements. But if you do need to show evidence, it’s good to have it organized. 

Step 3: Review Chargeback Codes 

Sometimes, chargebacks happen without a word from your client. In this scenario, you’ll want to review the chargeback code. 

A chargeback code is a unique identifier. It’s a series of numbers and sometimes letters that explain why the chargeback happened. 

You can see these codes through your payment processor or bank’s reporting system. 

The codes themselves differ between card providers. Below, we’ve listed some of the most common codes from Visa, Mastercard, and American Express. 

Visa chargeback codes include: 

• 62: Counterfeit transaction 
• 12.6.1: Duplicate processing 
• 30: Services not provided or merchandise not received 

Mastercard chargeback codes include: 

• 4840: Fraudulent processing of transactions 
• 4812: Account number not on file 
• 4853: Cardholder dispute 

American Express chargeback codes include: 

• F14: Missing signature 
• A02: No valid authorization 
• C31: Goods/services not as described 

Step 4: Communicate With Your Customer 

Let’s say your customer doesn’t reach out to you first. So, you skip step 1. 

You’ve since reviewed the chargeback code. You know the reason why the chargeback happened. 

The next step is to communicate with your customer. How you approach this will depend on the code. 

• Say the chargeback was issued because of fraud or authorization problems. Let your customer know that you’re investigating the issue. You take their security seriously, and you’re working with your payment processor. 
• If the chargeback happened because of a dispute about the transaction amount, use your documentation to find the truth. If your client was overcharged, apologize and agree to the refund. 
• In cases where the chargeback occurred because your client wasn’t happy with your service, offer to fix it for them. You might do this free of charge, depending on the scope and nature of the work. 

RELATED ARTICLE: Credit Memos: What They Are and How To Write One 

Step 5: File a Dispute Response 

You’ve pored over your documentation. You’ve looked at the code and know the reason why the chargeback happened. 

You’re convinced it was unfair. You believe the original charge was valid, and you have the records to prove it. 

In this instance, you can file a dispute response. This gives you an opportunity to give the bank or processor evidence that the transaction was legitimate. You can show them that you followed through on your side of the bargain. 

Here’s how to file a dispute response: 

• Look through the documentation you’ve gathered. Pick the evidence most relevant to the dispute response. This will likely be a mix of financial information and customer communication. 
• Log in to your payment processor’s platform. There will be an option to submit a response. If you can’t find it, you can contact their support team. You’ll likely be prompted to fill in a form. You’ll be able to explain the situation and upload your evidence. 
• After you submit your response, the bank will read it. They’ll decide whether to reverse the chargeback based on the evidence provided. 

Preventing Chargebacks and Payment Disputes in the First Place 

You know how the saying goes: prevention is better than the cure. 

How can you stop chargebacks and payment disputes from happening in the first place? Give these tips and tricks a go: 

• Update your service descriptions and terms. Be highly specific. Make sure to use plain, easy-to-understand language. Your clients should know exactly what to expect from your service. And you should always meet these expectations. 
• Maintain open communication with your clients. Make it easy for them to get in touch if they have any concerns, whether payment-related or otherwise. They should feel comfortable asking you questions. 
• Use digital signatures and contracts. Secure software like Docusign locks in agreements between you and your client. If they dispute anything in the future, you can revisit the contract to sort things out. 
• Keep an eye on your transactions. Flag potentially fraudulent payments as soon as you see them. That way, you stay one step ahead. 
• Automate payment processes where possible. Use integrated software so that all your data matches. Automation also reduces the risk of human error. That means no more typos leading to disputes. 

FROM ONE OF OUR PARTNERS: Does Your Small Business Have a Friendly Fraud Problem? 

Top Payment Dispute Resolution Practices for Business Owners 

Be proactive with these best practices: 

• Schedule reviews of your service descriptions and payment terms. That way, you know they are up to date. 
• Use data and feedback. Are there any disputes or chargeback codes that pop up again and again? What about customer complaints related to payments? If so, make a plan to fix the issue. 
• Keep up with fraud trends. U.S. Bank has a great blog for business owners. You can also check out resources from the Small Business Association. 
• Plan your response ahead of time. Know what you’ll do should a customer dispute a payment. If you can a team, you can train them so they understand your payment dispute resolution strategy.