Setting up dispute best practices may seem daunting to merchants. But the effort pays off in the long run to prevent unnecessary disputes.
Unfortunately, as long as a business accepts credit cards, disputes will happen. But there are steps merchants can take to prevent disputes from occurring. For restauranteurs, American Express put together a checklist to help handle and avoid disputes. We will take a look at their recommendations and dive a little deeper into dispute prevention.
But first, let's talk about the types of payment fraud restaurants face.
Payment Fraud Types
True fraud is when a fraudster obtains a stolen card or credit card credentials and successfully uses it to make a purchase. This means that the actual cardholder disputes the purchase because they did not authorize the transaction. Because of the Zero Liability Guarantees and the Fair Credit Billing Act, the cardholder is not responsible for any purchases they did not make. Instead, that liability falls on the merchant. As a result, merchants are not able to win true fraud disputes.
Friendly fraud is when a cardholder accidentally disputes a purchase. The dispute could stem from simple forgetfulness, an unclear merchant descriptor, or a family member making an unknown purchase. Friendly fraud is not a valid reason to dispute a charge, so merchants can win these disputes and regain the transaction amount with a well-crafted dispute response.
Lastly, chargeback fraud is when a cardholder maliciously disputes a purchase in an attempt to get their money back, while still retaining the goods or services they received. This type of fraud can be caused by buyer’s remorse, unwillingness to pay the total amount, bad budgeting, or simply the intention of stealing the goods or services. This type of fraud is also not a valid reason to dispute a charge, so the merchant can win these disputes.
Now let's dive into the tips for preventing disputes.
Get the Necessary Evidence
Each reason code requires specific compelling evidence needed for the dispute response to disprove the customer's claim. Throughout the transaction and customer service process, merchants should be collecting the necessary evidence to make a strong dispute response. One piece of evidence that should be obtained from every cardholder is a signature. To see what other evidence you need to collect merchants can research the reason codes or talk to their dispute analysts about any evidence they are missing when they create a dispute response.
Avoid Valid Disputes
If a merchant receives a valid dispute, meaning the customer has a valid reason to dispute the charge, merchants are not able to win the dispute. A common valid reason for a customer to dispute a charge is if the merchant charges the cardholder twice for the same transaction. Amex suggests that as soon as a merchant recognizes the duplicate charge, they should contact their processor, American Express, and immediately submit corrections. It is important to note that if a restaurateur has already received a dispute for a duplicate transaction, they should not refund the customer. This may result in the cardholder being credited twice. If you had already credited the cardholder before the dispute was initiated, you should submit evidence that the credit was already processed.
Not only does avoiding valid disputes to protect your revenue and bottom line, but it also creates stronger customer loyalty and better customer experience.
Extra Mile on Customer Service
Customer service can go a long way when it comes to avoiding disputes. Amex suggests that restaurant merchants should make sure to rectify any customer grievances at the time of the sale. You don't want the customer turning to their issuing bank instead of working an issue out with you. Also, it is important to make sure there aren't any math errors, complementary items still on the bill, or out of the ordinary gratuities before you submit the charge.
For large groups or any other situation where there are out of the ordinary policies, any extra charges or requirements should be clearly explained before the event. These policies could include table minimums, gratuities, authorized guests, and cancelation penalties. Restaurateurs should have an established method of communicating these policies and track when the customer agrees to them. Merchants should also be sure to keep track of all charge records, invoices, and authorized approvals.
Tabs and Pay as You Go
When a customer opens a tab, Amex recommends merchants should obtain a form of identification such as a driver's license until the tab is closed, the receipt is signed, and the EMV transaction is approved. By obtaining an ID, the merchant can validate that the card matches to prevent true fraud and diminish the chance of walkouts. For table minimums, merchants should use a "pay as you go" method once that threshold is hit.
Preparation Helps in the Long Run
Setting up dispute best practices may seem daunting to merchants. But the effort pays off in the long run to prevent unnecessary disputes. Which means less revenue loss, a smaller amount of time spent crafting dispute response documents, and a drop in the cost of disputes fees. Overall, creating preventive measures to stop disputes and setting up your operations to have the correct evidence when disputes happen will protect your restaurants' bottom line.