My credit card chargeback nightmare
Imagine losing $4,000 from your business account due to a wrongly disputed charge. This happened to me… and it was a nightmare.
“Do you take credit cards?”
If you are like many solopreneurs, you checked out merchant accounts as part of setting up your business. You then ran away screaming from the mountain of paper, and enough monthly charges that could pay the cost of a few more days of daycare.
That was me. I looked at the paperwork, poked it with a stick and then decided that all my clients would be so wonderful and delighted with my work that they would shower me with cash or bank transfer, and credit cards would not be needed.
The system worked beautifully until clients wanted to pay via credit card. My solution? Well, I used an online payment system for selling my e-books online, and had a generally happy relationship with them as a provider for these smaller transactions. So, when clients started to ask to pay via credit card, it seemed like a no-brainer.
"Most small businesses would struggle with suddenly losing $4,000 of already committed expenditure. Mine certainly did."
But it wasn’t. It turned into my worst nightmare.
All was going well with a few smaller client transactions going through, until one client paid for their nearly $4,000 invoice via this system.
My first rude awakening came at the fees. $84 in transaction fees. Gulp! After a stiff whisky, I magnanimously decided I was willing to wear the cost just to get the money in and the project ticked off.
I transferred the money into my bank account, paid my mortgage and other expenses from the money, archived the client file, and promptly forgot about it for a few weeks. That was until I received an email:
“One of your buyers filed a chargeback with their credit card provider. The buyer stated that they didn’t authorise this purchase.”
What the heck?
I dug further and found it was for the $4,000 project. When I went into my account, I saw that it was suddenly a few thousand in the red, and all transactions halted in and out of the account.
No worries, I thought. I will simply get in touch with the project manager who will quickly sort out the misunderstanding.
I was wrong. It took a few days for them to respond. They then reminded the relevant business owner who had lodged the dispute who we were and that it was a legitimate charge. They then sent me an email confirming they were wrong – “Their bad. Sorry. “
I sent this email through to the payment provider to prove my case, along with the signed project legal agreement, and confirmation of completion of the project from the client.
Great! I thought. Surely it will be quickly fixed now.
They informed me they take up to 30 days to review any documentation. However, what I had sent through was not enough. They needed something in writing from the client’s bank.
On the plus side, they released the hold on my account accepting payments. Fantastic!
It was just a pity I had had to deal with half a dozen angry people trying to buy e-books and pay their invoices via this system over the past week but couldn’t. No biggie – I only lost about half a day in sorting each one out, and calming angry clients who no longer trusted my business. No biggie (I told myself through gritted teeth).
However, what was a biggie was the fact I still couldn’t PAY anything as the account was still frozen. All my periodic payments started to bounce. So, I needed to call and set up alternative payment options for each one.
And still the disputed transaction dragged on.
The problem was the client had forgotten to tell their bank it was a mistake. After a few more days, and more nudging from me, they made the phone call to the bank. This phone call cancelling their dispute was confirmed in writing by the bank.
I sent a copy of the bank letter to the provider. Again, I hoped for a speedy resolution.
False hope, unfortunately.
They’ll informed me that only the bank telling them directly that the matter was cancelled would be enough. And did they mention that the 30 days was simply for them to look at the letters? It could take them another 120 days before they made a decision on the matter.
I waited … and by then every periodic payment needed to be tracked down and alternative payment options set up.
More days of work were lost trying to juggle accounts and books and business expenses. Most small businesses would struggle with suddenly losing $4,000. Mine certainly did.
I also lost another $5000 project as the client wanted to pay via credit card, and given that my credit card facility was under dispute, that meant that option was off the table. So, the client cancelled their project and went elsewhere.
Finally, they sent me another note.
“We’ve been notified by your buyer’s card provider that your case has been decided in the buyer’s favour. As a token of gratitude for valued customers like you, we won’t debit your account for the disputed amount.”
Yes, the client had had a brain fart and forgotten who we were. They then admitted they were mistaken and cancelled the disputed transaction … and STILL the bank decided that we were in the wrong!
On a plus, I got the money back. Whoopee!
All in all, that brain fart by the one customer cost my business over $10,000 in time lost, lost business and late payment penalties. The one chargeback cost significantly more than the value of the project.
So where am I now with my merchant accounts and accepting credit cards? While I have been looking at credit card alternatives that pass on charges to my clients, for now, I have gone back to the old school ways of accepting payments. Bigger invoices are now payable by bank transfer only thanks.
My lessons for other solopreneurs: to reduce the risk of chargebacks, remind any client who’s used the system to tell their bookkeeper and anyone who processes their accounts, that the charge will be appearing in their statement.
Send at least two reminder emails – one on payment and one seven days later just to make sure that they get the message. Offer to tattoo it on their arm if they are the forgetful type.
And if anyone asks if you accept credit cards, take a very deep breath before you answer.