How to Manage and Prevent Payment Disputes or Chargebacks

For every transaction, you want the following information:

  • Customer name
  • Customer email
  • CVC number on their credit card
  • Full billing address and postcode
  • Shipping address, if different from billing

11. Send shipment tracking information

Chargebacks might seem intimidating or difficult to deal with. However, it’s an important part of running a store and following some simple steps can save you a lot of stress. Credit card companies still want you to be successful while protecting their users, so work within the process to maintain a solid reputation. 

A clear statement descriptor informs your buyers of where they purchased an item. It could immediately reduce disputes caused by unrecognized charges. They’ll see your information and remember that, yes, it’s a legitimate purchase they intended to make.

descriptor statement examples

You can learn more about some of these here.

1. Use a clear bank statement descriptor

If you receive no response, especially with repeated attempts, or if the phone number appears to be invalid, consider refunding the order without shipping it.

If you’re using WooCommerce Payments and have questions about how to best handle disputes, you can always reach out to the WooCommerce support team for assistance. 

How can I reduce my online store’s dispute rate?

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Here’s what to do when you receive a payment dispute notice:

Respond immediately

A payment dispute happens anytime a cardholder contacts their credit card company to contest a charge on their bill. Credit card companies take these complaints seriously, and if they determine that the reason for the dispute is valid, they’ll provide a provisional credit to the customer’s account while the dispute is resolved. This is also known as a chargeback.

Why do chargebacks and disputes happen?

For instance, Visa will increase their penalties against a business with at least 100 chargebacks in a month and 0.9% dispute activity. But Mastercard’s dispute threshold begins at 1.5%. 

If you’re using WooCommerce Payments, you can easily log into your store’s dashboard to respond to the dispute.

dispute response in WooCommerce Payments

Provide documentation

The difference is that some disputes don’t happen until weeks or months after the purchase. This is what dispute activity incorporates. You might get five disputes in one week, but if three of those relate to purchases made prior to that week, then your dispute rate would only include the two from that week, but your dispute activity would include all five. Here is more from Stripe on measuring disputes.

chart of dispute activity

While this is usually an infrequent event, if it happens on a regular basis, important partners like credit card companies could start to levy fines, impose stricter rules, or cut ties with your business. 

This is the short phrase that appears on credit card statements for each purchase. Ideally, it should say your company’s name, state/region/province, and perhaps even include a phone number. Descriptors are limited to a maximum of 22 characters, so you’ll have to be creative and carefully choose what will be most recognizable to your customers. Why? 

Include your company name, location, contact information, website, logo, and a message about customer service. And be sure this doesn’t interfere with the transaction details on the receipt.

3. Respond to customer complaints promptly and look for solutions

First, you lose the profit and the revenue from the sale and have to pay a fee on top of that loss. 

Sometimes, when running an online store, you make a sale but later receive a payment dispute notice. These usually happen weeks – or even months – after the initial transaction. Now you’ve got administrative work to take care of, the risk of losing the revenue from the sale, and less time to focus on running your business. 

The volume number is helpful for small businesses, because if you only receive 50 payments in a given month, and just one of them gets disputed, you’re already at a 2% rate. So the volume threshold keeps smaller businesses away from the higher penalties.

Details matter. Don’t skimp. 

8. Remove discontinued or out-of-stock items

The good news is that a proactive plan to prevent disputes and manage them when they do occur will keep your store clear from headaches. Even better news? You can learn everything you need to know in this article. 

What are chargebacks or disputes?

For the same reason as the bank descriptor, giving the customer easy-to-read, accurate company information on their receipt increases the chance that they’ll call you if there’s a problem, rather than their credit card company. 

Remove items from your online store that are no longer available so customers can’t order something they won’t receive. You might consider doing the same for items out of stock, unless you can easily and accurately include an ‘out of stock’ graphic on the relevant product pages, and keep up with it as the status changes. 

out of stock settings in WooCommerce

If the card network begins with an inquiry, you should respond immediately. If you use WooCommerce Payments, you’ll be notified of any disputes via email and an inbox notification in your dashboard. 

Next, provide clear and compelling evidence about the transaction in question. This should include the credit card number (or the truncated version), the date and amount of the transaction, and any order details or proof of delivery you have on file.

This is done automatically if you take advantage of the built-in inventory management on WooCommerce. You can choose to allow backorders or stop sales of out of stock items. Most merchants will want to toggle settings to, “Do not allow,” or “Allow, but notify customer.” 

9. Be cautious with international orders

The type of evidence you send will depend on the type of payment dispute you’re facing. There are at least seven types of payment disputes:

  1. Refund wasn’t processed
  2. Multiple charges
  3. Fraudulent charges
  4. Unrecognized charges
  5. Product not received
  6. Product unacceptable
  7. Subscription canceled

The ‘dispute rate’ measures the number of disputes per total processed transactions in a given time period, such as one week. So, if you had 500 payments processed in a week and five of those got disputed, you would have a 1% dispute rate for that week.

If a customer complains about a product, its quality, damage during delivery, or other aspects, listen to them and work with them to solve the problem and avoid a chargeback. 

4. Initiate contact before fulfilling suspicious orders

This could keep other card networks from wanting to do business with you. And if you can’t accept payments online, you can’t really run your business. 

We’ll dive deeper into both a bit later. 

This is distinct from ‘dispute activity,’ which measures the percent of disputes in a given time period, regardless of processing date.

And if a customer sees this on their statement and wonders about the charge, they may call you directly rather than file a dispute with their credit card company, and you can resolve it with them.

2. Put company info on transaction receipts

Not every business needs to collect shipping information, but get it anyway. This helps verify that a cardholder is who they claim to be. 

Certain types of fraud are an unfortunate reality in this day and age, and orders from some regions may pose a higher risk. It helps to choose a payment solution that includes fraud detection to help mitigate this risk, such as WooCommerce Payments.

10. Collect as much customer information as possible

Want to improve your fraud risk detection? That’s just one benefit of using WooCommerce Payments, which helps online businesses accept payments, preserve their reputation, and maximize profits. 

Get WooCommerce Payments