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Credit Card Processing : Chargebacks, Reserves, Risk, Holds & Freezes

Posted on Fri, Aug 15 2014 @ 11:02 AM

What You Need to Know

The most important thing to understand is that risk is the single largest factor that merchant account providers look at when determining whether to establish a credit card processing account account for a business. Risk is determined by the potential for fraud and the number of chargebacks a business may experience.

What is a Chargeback?

A chargeback happens when a consumer contacts their credit card company and requests a refund for a purchase they made on that credit card. It could be that the consumer didn't recognize the charge, was dissatisfied with the product or service, or never received the product or service. It's not uncommon for the consumer to bypass the merchant and directly reach out to their credit card company first. Right or wrong doesn't really matter ... when the consumer reaches out to their credit card company to demand a credit, a chargeback is initiated. This is not good for merchants because too many chargebacks can result in higher fees and even closure of their merchant account if too many occur.

Reserve Accounts

One way credit card processing companies protect themselves is to hold a "reserve". A reserve is basically funds processed by the business that the merchant account provider holds in a reserve account instead of transferring the funds to the business bank account. The amount of the reserve can vary greatly.  It can be a small fixed amount, a large fixed amount, or even a full month of funds equal to the amount of the businesses credit card sales. The amount is determined by perceived risk associated with the busineses.  Having a reserve protects the merchant account company from future risks, including fraud and chargebacks.

credit card processing account

Higher Risk Business Sectors

In the credit card payments industry, some business sectors are considered higher risk than others, but the list really varies from provider to provider.  A partial list of business sectors that often fall into the higher risk category include:

  • Adult Related Businesses (Book Stores & Entertainment)
  • Check Cashing Businesses
  • Credit Repair Services
  • Gun Stores
  • Jewelry Stores
  • Multi-level Marketing Companies
  • Telemarketing Firms
  • Time Share Sales
  • Vacation Packages

Businesses in these sectors are often subject to reserves, as well as higher credit card processing rates. This provides the merchant account company some protection from the higher levels of fraud and chargebacks often associated with these sectors.

Merchant Account Holds & Freezes

One of the most financially devastating things that can happen to a business is a merchant account hold, or freeze. When this happens to a business, they cannot access the account.  The funds from open authorizations are also held without deposit for an undisclosed period of time. This means that the business cannot accept new credit card transactions and the income from recently processed transactions is not be deposited for days, weeks or longer.

Despite the horror stories, merchant account freezes are usually a result of the business violating the terms of their merchant account agreement. Violations can include utilizing the merchant account for personal use, selling items that were not included or defined in the merchant account agreement when the account was setup, accepting credit card payments for other businesses under their merchant account, as well as other fraudulent activities.

As a business owner, you can protect yourself from this by first following the terms of your agreement with your credit card processing provider.  If something changes in your business that impacts your credit card sales, you should contact your merchant account processor right away. This might include anticipated changes in average ticket amounts or new product or service lines introduced into the business. If you are running an unusually large ticket as a one time occurance, contact your merchant account provider's risk department prior to processing the transaction and let know the details.

 

The Novera Advantange

  • Novera’s consultative approach allows us to thoroughly educate our clients, equipping them to better understand this complicated industry.
  • We educate our clients about chargebacks, reserves, and holds, so they are informed and can better prevent these things from happening.
  • We take the mystery out of the credit card processing business.
  • We work with all types of businesses across the country

Contact Novera to learn more about how we work with businesses to provide the most fair and transparent pricing structure available on the market today for credit card processing.

Request a FREE QUOTE

Tags: accept credit cards, flat fee merchant account, chargebacks, accept online credit cards, credit card processing, online credit card payments, mobile payments

6 Actions You Can Take to Help Prevent Chargebacks

Posted on Sat, Nov 02 2013 @ 10:29 AM

If your business accepts credit cards, chances are you may have experienced a chargeback at some point. In simple terms, a chargeback occurs when a customer disputes a transaction through his or her card issuing bank. The card issuer then reverses the transaction and the merchant is left to respond to the chargeback and prove the transaction was valid in order to get the funds back.

Chargebacks may be inititiated for a variety of reasons, including:

  • the cardholder is dissatisfied with the product or service
  • the cardholder fails to recognize the transaction
  • the cardholder is charged more than once for the same item
  • the cardholder is overcharged
  • the cardholder did not receive the product or service 
  • the customer made a purchase using a stolen card number
  • and possibly the worst of all ...  "friendly fraud" ... the customer purchased the item with the intent to initiate a chargeback to receive the item free

chargeback

While it may be impossible to prevent fraudulent chargebacks to your business, there are a number of steps you can take to minimize the others.

  1. Ensure you have written return policy that is customer friendly.
    If you operate online, publish this policy on your website. If you provide physical receipts, make sure your policy is on the receipt.
  2. Make is easy to reach a human being at your business by telephone. If a cardholder has a question about about a charge appearing on their statement, they may call before contacting their card issuer to submit a chargeback. Most of the time the cardholder's concern can be addressed directly by the merchant, preventing the chargeback.
  3. If you have automatic recurring charges or subscription based services, make sure the cancellation process is easy. As time passes, a cardholder can forget about something they previously subscribed to and may call their bank to ask what a charge is. The bank often automatically issues a chargeback in this case.
  4. If the merchandise ordered by the cardholder is out of stock or delivery will be delayed, advise the cardholder in writing and offer the cardholder the option of purchasing a similar item or canceling the transaction. Do not substitute another item unless the customer agrees to accept it. 
  5. Ship merchandise before depositing transaction. Don’t deposit transactions with your merchant bank until you have shipped the ordered merchandise. If customers see a transaction on their monthly credit card statement before they receive the merchandise, it could lead to a preventable chargeback.
  6. Ensure that the business name appearing on cardholder's statements matches the name you are doing business as. If a cardholder purchases an item from MyWidgetWebsite.com and the charge on their statement appears as MWW, LLC (a name they don't recognize), they are more likely to initiate a chargeback.

Responding to chargebacks costs your business time and money. It pays to be proactive to prevent them from happening in the first place!

About Novera Payment Solutions

Novera Payment Solutions is well known as a leader in the credit card payments industry and is committed to helping businesses improve their bottom line by providing significant savings on credit card processing fees through our innovative flat fee merchant account pricing model.

Novera Payment Solutions Advantange

  • Novera Payment Solutions's consultative approach allows us to thoroughly educate our clients, equipping them to better understand this complicated industry.

  • We take the mystery out of the credit card processing business.

  • We work with all types of businesses across the country.

Contact Novera to learn more about how we work with businesses  to provide the most fair and transparent pricing structure available on the market today for credit card processing.

 

Request a FREE QUOTE

Tags: accept credit cards, flat fee merchant account, chargebacks, accept online credit cards