Shopify’s 5 Best Practices To prevent Payment Processor Chargebacks

As a business owner chargebacks are a huge annoying threat to your livelihood. When a customer feels like they’ve been unfairly charged for a product or service, they can file a chargeback directly from their bank or any payment processors, like paypal and stripe. That’s a nightmare for any business owner, let alone a dropshipper whose product shipping time is 2-4 weeks.

Apart from the monetary loss from chargebacks, if your company loses too many disputes, you can be flagged as a high risk merchant, which can lead to higher processing fees, holding of incoming money for 30 days or even worse, grant you the BAN HAMMER. Paypal and stripe are known for that. 

For dropshippers, the absence of paypal is an instant drop in conversion rate and you can go from profitable ROAs to an unprofitable one in just a day. This blow can literally obliterate your entire business.

So how do you prevent that?

These 5 best practices will do just that:

  • Respond to customers’ inquiries in 24 hours – automate the order tracking communications

  • Clear information in landing pages

  • Prolong refund date and offer customers refunds if customer insists

  • Intercept customers from raising a paypal dispute


Why do chargebacks even happen

According to one study, majority of chargebacks occur because of these 5 reasons:

  • Product mismatch with customer’s expectations

  • Customer got shipped the wrong product

  • Product didn’t arrive at all or didn’t arrive within necessary period

  • Order was billed twice, or recognized as fraud

  • Company will not accept a return or exchange

5 best practices to prevent chargebacks

  1. Responding to customer inquiries within 24 hours

The simplest way to prevent chargebacks is to focus on your customer service. Have your VA’s answer all emails and inquiries within a day, and de-escalate any situation when the customer is angry and mad. 

If they still insist on a refund, I would just recommend giving them a partial refund or full refund because it is much better than dealing with a chargeback. When somebody issues a chargeback, you’ll lose the whole amount plus a $15 fee. Most detrimental part is It’ll increase your chargeback dispute rate, which is a bigger loss for you. 

There are always a bunch of bad apples in a basket and giving them a refund would just be the ailment to your headaches.Always remember that customer satisfaction is the most important if you want to build a business that runs long term. If you’re after quick bucks and short term money, then know that you will eventually get the Paypal & Stripe BAN HAMMER.

If you’re dropshipping, make a deal with your supplier to refund you if there’s any problems and have the customers return the product back to your supplier. 

  1. Clear information in description

Even though you think that it is counter intuitive and maybe even better to hide important details that you’re lacking in, for example, long delivery times, I 100% recommend putting out clear, visible and truthful information in descriptions and everything else. 

If your business is run on honesty, there will be a lot of return customers as a result, and your business will grow profitably.

23% of product returns or chargebacks are because of inaccurate depiction of the product, high quality product pictures and videos in the landing page are crucial to bridge the gap between reality and expectations. Providing high quality photos that allows customers to zoom in and examine so that customers can have a real gauge on the product, which lets them set a more realistic expectation. 

Also have different picture variations of the product; if it’s a t-shirt, have pictures with and without models.

House of Holland, a shopify ecommerce brand does this pretty well

  1. Set clear return policies

Hiding the return policy in fine print is a guaranteed way to piss off your customers and get hit with a dispute. What you need is a clear page showing your return policy and answer all your customer’s possible objections and inquiries in this page. Not only is it showing authenticity as a brand, you can always re-direct them to this page with any questions regarding refunds. 

Use this checklist to address all the points your return policy will inlcude:

  1. Do you offer a partial or 100% refund  on all purchases, if the buyer isn’t satisfied?

  2. Do you refund shipping costs

  3. What’s the time window for returns

  4. What is the shipping address and procedure when doing returns

  5. Are there policies to return on-sale items?

  6. What constitutes a valid return? Original packaging? Tags still intact? 

What Sweet Stamp Store has done to their return page is what all brand should do. It’s simple, concise and has a positive underlying tone to their message delivery. Their return policy is wrote with a conversational tone, as if they’re talking to the customer and helping them with their experience. 

An example of a bad and negative tone will be something like: “We don’t issue refunds when you open the package. We do not refund the shipping fees as well. After 30 days, we do not accept any request for a refund.”

Although it may seem like you’re just getting your point across, if a customer who’s unsatisfied at the product or already mad at customer service, gets directed to this page, it’ll piss them off even further. You can then expect a chargeback heading your way.

  1. Investigate suspicious orders before fulfilling them

One of the most frustrating things as a merchant is dealing with fraud orders. If something seems odd about the order, it is highly recommended to investigate it before fulfilment. 

Thankfully, Shopify does fraud analysis for you and provides indicators for each order. You can use these indicators to investigate further and determine if you find it fraudulent. Every indicator is marked with green, red or grey icons, with green being seen as legitimate, red seen as fraudulent and grey are simply additional information that could be useful in your analysis. 

5. Intercept customers from raising a paypal dispute

Now, everyone knows that paypal disputes can mess up your entire online business if you have long shipping times and high chargeback dispute rate. But here’s a cool hack to reduce paypal’s disputes up to 80%. Paypal gives you the ability to create a personalized message to intercept people who are opening a dispute for a refund and chargeback.

Here’s a step by step process on how to implement this hack:

Go to your paypal account and click on the settings tab —> my selling preferences —> customer service message section.

Set up the message for the customers. They’ll see this right before they make a dispute, so the trick is to redirect them to your priority email support instead of making a dispute. 

The reason why we set up a custom email is because people will feel more prioritized.

The key is to promise them that it’ll be much faster and easier to go through with the prioritized email support rather than paypal. Note to emphasize that it will be MUCH FASTER. The customer wants their experience to be easy and hassle-free so they’ll most likely go with the simpler and faster option. 

And also, make sure to keep up with your word and have a dedicated customer support rep check the emails and handle the disputes as soon as possible. 

This is an unknown hack that a lot of shopify ecommerce brand owners and dropshippers do not know about. So I hope more people can share this hack around as this can make or break your dispute rate.

Hopefully you will apply these 5 practices into your shopify business and see your chargebacks reduce dramatically. 

If you want more actionable tips to implement for your shopify business, do sign up for our email list and stay tuned for our next blog! 

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