Technology / Business websites

Are fraudulent chargebacks sending your business broke?

Did you know customers can use chargebacks to obtain free goods and services from your business? It’s worth understanding what you can do to protect yourself and your business to ensure it doesn’t happen.


Regardless of what you sell online, at some point you will experience a chargeback no matter how good your products or services are.

I recently read yet another article about credit card chargebacks sending a business broke. This really upsets me to think that as a small business owner you can work so hard to set up a business, and people can still come along and take advantage of credit card chargebacks.

It makes sense to protect yourself and be aware of the risks.

What is a Chargeback?

Chargebacks are refunds granted to credit card owners who claim they either not made an order, or have not received the goods or service. Credit card companies mainly permit this to protect them from stolen or fraudulent card transactions. This ‘feature’ includes refunds for incorrect amounts charged to your card; any faulty or damaged goods that may have been returned; and items or services not received. When these things happen, you normally call your credit card company and they will generally issue a refund.

"You cannot prevent people from requesting chargebacks but you can try to protect yourself and your business from people doing so fraudulently."

How can this be a threat to your business?

Increasingly (and sadly), this is becoming a fraudulent means for customers to abuse the system when ordering goods online and is sending many small online business owners broke. Credit card chargebacks may be misused by your customer at your expense when you sell something online.

Many businesses are complaining that banks are making it too easy for customers to claim chargebacks because they’re not looking for true evidence of the missing goods or services.

In one example, the business owner stated that she provided a full file documenting the work, her client’s postal and IP address, full credit card information, emails and screenshots proving the amount agreed upon for the work to the bank. She sent this documentation to Visa, but believes the credit provider has not even looked at it. She has been waiting more than 6 months for a response.

Is it legal?

Generally chargebacks are permitted as a means to protect people when their credit card is stolen. When a customer uses this as a way to receive goods for free, it is fraud and a criminal offence.

So what you can do to help protect your business?

Get smart and protect yourself and your business from this potential problem:

  1. If your business name does not match your company or bank account name, have the bank add a note on your account so that clients know who the charge is coming from. Otherwise, they may not recognise the charge and cancel or dispute it.
  2. Have your invoice payments directly deposited electronically to bank accounts rather than accepting credit cards.
  3. Some payment gateways and platforms offer chargeback prevention insurance. However, this is an expensive way to ensure you receive payment that is actually due to you for your goods and services.
  4. Use a postal or courier delivery service with confirmation. Some courier companies offer free delivery confirmation, others charge a small fee to provide evidence of delivery. This is fundamental to proving you have sent the goods and they have been received.
  5. Purchase shipping insurance if you have fragile or items that could be damaged in transit.
  6. Ensure your refund policy clearly states the steps a customer needs to take to return any item. This should include that they must send the items back with tracking confirmation and that they are responsible for the item until it is acknowledged as returned to you.

You cannot prevent people from requesting chargebacks but you can try to protect yourself and your business from people doing so fraudulently.

Have you been a victim of dishonest chargebacks? What did you do to resolve it?

Vanessa Emilio

is a Practice Director, Lawyer, Founder and CEO of Legal123.com.au, a legal website business with easy-to-use, inexpensive legal templates, forms and agreements for everyday Australians as well as lots of useful information.


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