What are Chargebacks? How to Avoid Chargebacks in Restaurants

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How to Avoid Chargeback in Restaurants

About the Author

Sawailal Jangid is Digital Marketing Executive and Content Analyst at SotwareSuggest. He does researches and analyzes software to educate and advice to the business managers to streamline their business. In spare time he loves to do sports activities.

Chargebacks cannot be eliminated completely. However, restaurants can take some steps to keep them in check.

Running a restaurant today is no mean feat. Among its many challenges, chargebacks are increasingly becoming a major concern for restaurateurs. It’s a messy affair. You lose money that was in the bank. You may have a case of fraud on your hands, or worse, a disgruntled customer. It can especially be a major setback for newer restaurants. Restaurateurs must not make peace with chargebacks just yet. While they may be a part and parcel of the business, there are definitely some things you can do to avoid them. In this article, we will discuss chargebacks, why they exist and how they can be avoided.

What is a Chargeback?

Simply put, a chargeback occurs when a person denies a charge made to their credit card. In other words, the cardholder disputes a transaction. This causes a forced reversal of payment. The funds are immediately withdrawn from the restaurant and returned to the cardholder. The restaurant may object to a chargeback and attempt to prove the legitimacy of a transaction in an effort to get the cardholder’s claim dismissed, however, restaurateurs only get this opportunity once the forced refund is processed.

Why Do Chargebacks Exist?

To restaurateurs, chargebacks may seem highly unfair. However, it is important to understand why they exist in the first place. Chargebacks are meant to protect customers from inaccurate billing and also fraudulent credit card practices.

Here are some of the common scenarios:

  1. A customer may have been charged an incorrect amount
  2. The charges were made using a stolen card
  3. The customer was charged for products or services that were not delivered as agreed

As you can see, chargebacks do not just protect cardholders from fraud and theft, but they also safeguard customers from unfair business practices. It is a step towards ensuring that customers receive quality products, satisfactory customer service and timely refunds.

For restaurants, managing chargebacks is therefore, doubly challenging. While most businesses provide either a product or a service, restaurants do not just serve food but also provide a service. Guests have the right to initiate a chargeback if the food and/or the service did not match their expectations. Here, restaurants are vulnerable to the subjective opinion of a customer.

Fighting Chargebacks- What You Need to Know:

Chargebacks are an accepted reality not just in the restaurant business but also in any industry that allows credit card payments. The customer has the upper hand here. Plainly speaking, when it comes to chargebacks, restaurants are automatically considered guilty until they prove their innocence.

To fight a chargeback, restaurateurs, must put together a dispute response. These responses require compelling evidence depending on the reason code. This evidence can require you to provide the receipt from the specific transaction in question. Nobody anticipates a chargeback and it is not uncommon to find frenzied restaurateurs sifting through boxes trying to locate them. However, if they use a restaurant management software, this may not be such an issue. In this case, they may have digital copies of the receipt stored by the system and easily accessible for the dispute response.

Avoiding Chargebacks

Chargebacks cannot be eliminated completely. However, restaurants can take some steps to keep them in check. When it comes to chargebacks, prevention is definitely better than cure. Let’s discuss some of the things that restaurants can do to minimize the scope of chargebacks:

Handle Dissatisfied Customers Without Delay:

We have already discussed how chargebacks can occur because a product or service does not match a customer’s expectations. In a restaurant, this situation is known to arise every now and then. Handle disgruntled customers immediately. Ensure that you remediate any negative feedback immediately. Pacify the customer. If required, offer a refund or a partial refund. A refund will cost you less than a chargeback. In other words, resolve the issue before a customer initiates a chargeback.

Share Contact Information and Follow Up:

All customers may not express their dissatisfaction openly. Encourage customers to fill feedback forms at the end of the meal. Record their contact information. Follow up on negative feedback immediately. Also, you must ensure that your contact information is easily available on the bill or receipt. Make it very easy for the customer to contact you if they have a complaint.

Identify Common Issues and Resolve Them:

Take customer feedback seriously. Make a note of the common negative reactions. Identify any negative patterns or gaps in your service or processes. Identify commonly reported issues with your product. For example, if you are increasingly receiving comments that the food is overcooked or undercooked, you can take it up with your kitchen staff and do something about it. Identifying the root cause of the chargeback will give you the opportunity to find a solution so that any further chargebacks due to that issues can be curbed.

Set Clear Expectations:

It is possible to match a guest’s expectations perfectly, all the time, every time. However, one can definitely come close. Describe the items on the menu clearly. Eliminate any cause for misunderstanding. For example, if a dish is spicier than normal, convey that to guests and make sure that they are okay with it. Take a few minutes to educate the customer on what they can expect. Pay close attention to how your products are described on the menu. If you include any pictures in the menu, make sure that they match the actual item. Train your staff well.

Follow Best Practices/Guidelines Shared by Major Card Brands:

Major credit card providers like Visa, MasterCard, American Express etc. have a published set of best practices that all merchants must follow. Invest a few minutes to go through the guidelines. Implementing them can go a long way in avoiding chargebacks.

Use a Restaurant Management Software:

More and more businesses are embracing restaurant management systems to increase their revenue. These systems increase operational efficiency in restaurants and eliminate various issues that lead to chargebacks while making it easier to respond.

Conclusion:

Chargebacks can be frustrating. They may seem unfair. You can run but you can’t hide. Any business that accepts payments via credit cards cannot be immune to chargebacks. However, taking a few preventive measures, being a bit more careful, can go a long way in protecting your restaurant business from chargebacks.

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