Complete Guide to Chargebacks in Professional Services (2024)

CEO of ChargePay
June 10, 2024
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Chargebacks are often associated with the e-commerce industry in relation to product sales. In reality, it isn’t necessarily limited to one industry. 

Any and every monetary transaction can lead to chargebacks, irrespective of the industry. Chargebacks in professional services apply to consulting, legal advice, accounting, and marketing. They have a direct impact on a business’s financial standing. This is why business owners must prioritize chargeback management to soften the immense impact of chargebacks.

Not only can chargebacks be managed, but they can also be prevented. You need the right process and strategies in place to reap the benefits, and this guide gives you all of them. Discover what service chargebacks are, their impact, the management process, and prevention strategies.

Can chargebacks occur on service transactions?

Online stores today are not limited to the purchase and sale of products. Merchants offering services such as writing, accounting, consulting, marketing, and more also have online stores. These stores are connected to merchant accounts that accept debit and credit card payments.

All such card transactions can be reversed and hence attract chargebacks. In chargebacks, a customer who disagrees with a service files a dispute with their issuing bank for multiple reasons. The issuing bank checks the validity of the case and takes the necessary action. If accepted, the transaction amount is sent back to the customer’s account aka a chargeback is issued. As for merchants, they lose their business and also have to bear additional fees.

Impact of chargebacks

  • Financial - chargebacks affect a business’s bottom line through loss of revenue, chargeback fees, and operational costs. 
  • Reputation - client relationships are tampered with when they believe they were charged unfairly, leading to a loss of trust. Increasing chargebacks will have the payment processors on your back. They might take strict measures, like a spike in processing fees, or revoke your rights to accept payments.
  • Operational - chargebacks put your cash flow and manpower on hold and occupied. You will lose a major portion of your manpower, funds, efforts, and time in the process of resolving chargebacks.

Also read: Do chargebacks hurt business growth?

Why do chargebacks occur in professional services?

Merchants must be aware of the reasons why chargebacks occur, to efficiently fight them and win. Merchants can also leverage this knowledge to take preventive measures and mitigate possible chargebacks. Here are some of the common reasons why chargebacks occur in professional services:

1. Unsatisfactory service

Customers who believe the service they received was not up to the mark may choose to chargeback the transaction, stating dissatisfaction. Any quality or mismatch in services promised vs. offered may also attract chargebacks. 

2. Incorrect billing

Disagreement in billing amount, subscription, renewal, hidden charges, etc also leads to chargebacks from customers. For instance, such as double billing and other technical glitches also result in chargebacks.

3. Frauds transactions

Unauthorized transactions and friendly frauds fall under this category. Fraudulent and compromised credit/debit card transactions are always charged back. Customers who do not recognize a transaction are the first to raise chargeback requests.

4. Service not received

Customers who did not receive the services but were charged for them can apply for a chargeback. Delivery is one of the most common reasons for chargebacks that arise due to delivery status conflicts. 

5. Confusions and disagreements

When customers are unaware of certain policies, terms & conditions, subscription rules, and more, they are unsatisfied and choose to chargeback the service. Even mismatched expectations or outcomes from the product are also charged back. 

How to best manage chargebacks in professional services?

Accounting service

You should be aware of the general chargeback process of banks or card networks to build an immune system for your business. Use these steps to manage and win chargebacks efficiently:

1. Chargeback request

Chargebacks are raised with either the issuing banks or the card networks. Customers raise the request, stating their reason, and seek reversal of the money they paid. The bank runs through the request and, based on its legitimacy, reverses the amount to credit the customer’s account. The bank also issues a reason code for the case.

Pro tip: Use automation tools like ChargePay to get instant notifications that give you ample time to act. 

2. Merchant endorsement

The merchant is notified of the request when the funds are reversed, either by their payment service provider or bank. The notification also comes with the reason code, an alphanumeric code deciphering the reason why a chargeback was requested. Merchants are also issued a deadline to reply to the chargeback.

Pro tip: be quick to address the chargeback request and act accordingly. If you miss the deadline, the chargebacks are automatically accepted, and you will lose the case.

3. Investigation

Based on the notification and the case, you have the option to either accept the chargeback or defend it. If you accept it, the bank closes the case, and you lose your business money. If you choose to defend it, you need to investigate and gather the necessary evidence to back your case. You only have one shot to win, so make it count.

Pro tip: be transparent and communicate with the customer to know their concerns and take corrective action. 

4. Defending chargeback

If you defend the chargeback, you need to prepare for it with a rebuttal letter and necessary evidence. You must collect documents that prove your service delivery, or whatever the reason is. Documents such as contracts, communication records, and proof of service delivery serve as evidence. Remember to do your due diligence and evaluate if the case is worth fighting for. If your returns do not offset the time, money, and labor you will put into the case, it is not worth fighting. 

Pro tip: keep your rebuttal letter and evidence short and to the point. For example, if the chargeback is about renewal fees, add a screenshot of your renewal terms only, as displayed on the website.

Also read: How to fight a chargeback 

5. Final decision

The final call is the issuing bank’s to make. The issuing bank goes through your evidence and makes the final decision. This is also communicated to all the parties before the case is closed. 

Pro tip: maintain records of chargebacks and reasons. Analyze them all to find gaps you can correct or to come up with preventive strategies.

What are some effective strategies to prevent chargebacks on services?

Scammers are everywhere. Though chargebacks came into existence to safeguard and protect buyers, scammers exploit them to enjoy products and services for free. This is why prevention is a critical part of setting up a chargeback process. Here are some strategies you can adopt:

1. Customer verification

Make sure you verify your customer before accepting to provide a service. You cannot just accept a service via email or phone call. Ask for their details, run a background check, and confirm their business. If you find some red flags in the process, check for their reputation on social media or seek out clarification through common connections.

2. Signing contracts

It doesn’t matter how reputed your prospect is or otherwise; if you are to do business with them, put everything on paper. Signing contracts is extremely necessary for the service industry, which does not just lay down terms, conditions, and expectations from the service but also acts as the evidence you need, should it result in a chargeback. A contract also puts fraud at bay.

3. Copyright transfers (if necessary)

Copyright cases are pretty common in the service industry. If you are providing services like writing, graphic design, or website design, ensure to discuss copyright terms as well. Put them down on the contract for clarity and transparency. This will prevent your business from client infringing on copyright laws related to chargebacks and legal trouble.

4. Following timelines

Just like a product, a service is charge-backed when not received on agreed timelines. Check your bandwidth before agreeing upon a time, and stick to it. You must try your best to turn over your service on time. In unforeseen circumstances where you are not able to deliver, communicate with the customer and ask for an extension. 

5. Customer support

When customers have no access to your company, they go for chargebacks. Open a communication line between your customers and you where they can reach out to you for concerns and questions. Reply to all customer queries on time and aim to provide the best possible solution. Great customer support prevents chargebacks. 

6. Red flags or risks

Stay alert throughout the process of communicating with and onboarding your potential clients. Pick all possible red flags along the way to determine if you want to work with them or if you should pass them. Some examples are customers unwilling to pay a security deposit for huge projects, hesitant to sign contracts, not always reachable, and similar instances. 

The chargeback process is tough to handle and can perhaps get overwhelming if you are new to the industry. You can always seek help from automation tools such as ChargePay. We have all the right tools and methods at your disposal that can help you manage and prevent chargebacks. You can enjoy almost 80% revenue recovery and expand your business, while we take care of your chargebacks. 

Time to win chargebacks with ChargePay.

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