In recent years and since the spreading of EMV, online fraud has surged. Merchants have been struggling due to the increasing number of chargebacks from consumers. Some merchants even add the costs associated with chargebacks to the price of commodities and services, just to be safe. Other merchants resort to sending chargebacks to collections to help them recover what’s rightfully theirs. They do all this all in a bid to maintain and improve their bottom line as a business, since as much as 1-5% of revenue can be lost to fraud.
When merchants resort to Sending Chargebacks to Collections, they delegate the task of obtaining payment in relation to outstanding debt to the agency. As per the Fair Debt Collection Practice Act of 1977, merchants have every right to engage in debt collection but of course under a regulatory framework. They may not be able to charge the specific card they got a chargeback for, but the consumer’s obligation still stands. Therefore, it’s important to choose reputable agencies that uphold the rule of law and legislations governing the practice.
In the process of working on chargebacks, debt collectors go beyond chargeback representment, which is the process of disputing the debt with your acquiring bank. Representation involves looking for solid proof validating the original payment. When merchants can prove this, they void the consumer’s transaction dispute and initiate the process of returning the funds to the merchant. Debt collectors can be engaged both after and at the same time as the representation process, since the obligation stands regardless of the credit card payment.
So in this regard, what should a merchant need to do before Sending Chargebacks to Collections?
- Analyze the Grounds for Filing the Chargeback
It is prudent to analyze the grounds in which the consumer is filing the chargeback. At times, consumers may have been charged wrongly due to billing errors on your side. You may not realize this until you follow through with the claim. They may also have a genuine case whereby they did not authorize the purchase; it may be a case of identity theft or a stolen card. You wouldn’t want to damage your reputation by Sending Chargebacks to Collections that were wrongly acquired and go to great lengths trying to justify it. And besides that, you ought to give the consumer audience-at least even the basic rules of justice allow this. The customer may also have a valid service issue that caused them to reneg on their payment, and that is something you’d like to know before pursuing the chargeback.
Doing an in-depth analysis of these grounds would let you determine whether to send the case to collections based on the claims of the consumer.
- Consider Timing and Validity
Timing matters a lot in the process of executing debt collection and chargeback representments. This is due to the complexity of the process and the implications. As a merchant, you would have to analyze the end-results first to determine whether you are in a position to bear them. We say this because we know your business comes first. Whatever action you pursue should always have a positive implication on your business.
Picture these two scenarios; you are having cash flow problems and are realizing meager profits. This means that you need customers to pay up hence justification for an aggressive approach to debt collection.
On the other hand, you feel that the heat of your aggressive approach would scare away customers who only needed a slap on the wrist. This means that you be lax and laidback without using debt collection; meaning revenue loss to your business.
What would you do? Well, discretion and diligence would be your best buddies. Determine which route would be appropriate and advantageous at the point in time. The best course of action would be one which won’t damage your reputation as a merchant and your business, while at the same time, that which won’t let you suffer massive revenue loss.
Many merchants stay away from debt collection for chargebacks until losses reach a certain threshold, then apply aggressive means right off the bat. Neither extreme approach is healthy. Engaging a debt collection partner that supports your brand while actively pursuing chargebacks in a controlled manner (rather than an aggressive one) will allow you to maximize returns and protect your business at the same time.
- Reach Out to Try and Resolve the Dispute In Good Faith Before Sending Chargebacks to Collections
It pays to always seek an audience with the consumer and the card company first before initiating a long and expensive legal process. Possibly, the consumer may have given you wrong measurements or may have erred in their order quantities, leading to a service dispute. The consumer may make you understand this more clearly when you have reached out to them or by you accepting their invitation to work something out.
However, when there are valid grounds to send the chargeback to collections, then ensure that you have asked the consumer to rescind the chargeback by reaching out to them. Table your evidence to the card company. Cite your reasons and give them room to respond with their own. When your consumer agrees to rescind the chargeback, well and good. If they don’t, then at let them know that you will be sending the chargeback to collections since you have valid reasons that the charge was correctly administered.
Indeed, it is high time that merchants understood their rights. They should not be victimized by unfounded claims and unwarranted chargebacks. As a merchant, you should consider these three aspects before you send chargebacks to collections for a better outcome. Ensure that you take into consideration pertinent issues revolving around your business reputation and profitability before engaging collection agencies.