As more consumers shift away from physical stores and toward subscription services, online storefronts, and digital banking we have seen a growing number of chargebacks in the eCommerce space. In order to accommodate this, some companies even add costs associated with chargebacks to the price of their products (it’s estimated that for $100 in chargebacks, you are actually losing out of $240).
Other companies, unable to recoup losses themselves, send chargebacks to collection agencies, and they may be waiting for too long. Here are three things your eCommerce business can do to better understand chargebacks and mitigate your losses.
Analyze why the chargeback was filed
Not all chargebacks are fraudulent. Consumers may file a chargeback due to a billing error or an unauthorized purchase was made on their card. Doing an in-depth analysis of accounts prevents potentially damaging your own reputation with a consumer by sending them to collections without first seeking resolution. This also provides you with an opportunity to then reach out to your customers and understand the reasons they renege on their payment so that you can possibly prepare for similar situations in the future.
This also enables you to create a larger chargeback strategy. Being too lenient or allowing chargebacks to go unmanaged will leave you at a loss, being too strict may alienate otherwise loyal consumers, and investing time and money into smaller or more resistant accounts may lead to worse losses.
Developing a routine for who to reach out to and how to reach them based on historical behavioral data can help you to best recoup your losses before needing to send accounts to collections.
Start a conversation with your consumers
These communications can open more details than internal analysis. A consumer may have provided incorrect measurements for a garment or accidentally order 200 of something when they meant to order 20 and prompted a service dispute. You can work to maintain a relationship with the consumer and protect your brand. Chargebacks aren’t always driven by malicious intent, and you might be able to resolve the issue together.
Connecting with your consumer and resolving the situation is a best-case scenario post-chargeback. If you reach them and they continue to dispute the charge, cite your reasons and offer them an opportunity for response.
When you are supported by analytics, you have valid grounds to inform them that the chargeback will be sent to collections; ensure that you have documented your communications with them and send the account to your debt collection partner.
Find a debt collection agency before you think you’ll need one
The collections industry is often seen as a last resort for eCommerce teams, but waiting until your financial situation feels dire means that the collectors you hired are pressured to perform (and behave) aggressively and quickly.
These collection strategies are often the foundation for the negative stigma surrounding the account recovery industry, and working with a debt collection partner that supports your brand and can collect chargebacks at a controlled, even rate provides you more flexibility. A more gradual effort can help you maximize your returns and protect your business.
Digital-first collection strategies can not only support but can help build your brand reputation! Read more about how they can help.
Partnering with the right collector can also, counterintuitively, help to prevent accounts from being sent to collections. The negative stigma of the collections industry extends to the minds of consumers, and many consumers fear the prospect of their accounts ending up in collections.
Whether this is due to the potential damage to their credit scores or their perception of traditional call-and-collect debt collection agencies, simply having a collections partner can help to reinforce your valid claim to payments before your recovery specialists ever see the account.
Chargebacks can be damaging to a business and catastrophic to small businesses. By effectively tracking them, understanding how to talk to your customers about their chargebacks, and recognizing when to escalate the issue to a partner company, you’ll be prepared to protect your eCommerce business.