How to Fight, Win And Prevent Credit Card Chargebacks for Physical and Digital Product Sales

David Linder

David Linder

MSc in Marketing from the University of Salford. Facebook Certified Planning Professional Facebook Certified Buying Professional
10 min read

Accepting credit cards as payment in your business transactions is a very promising concept. You can increase your revenue, your customer base and improve productivity. By simply getting yourself a merchant account to be able to accept cards for payments, you are adding convenience, cost-effectiveness and a professional image right into your business. If you have already taken this big leap, you probably have experienced how confusing credit card processing can be.


Although the entire process can with time, get to be fairly easy to get around in, there is one important aspect of merchant accounts that you need to understand very well – chargebacks. Whether you sell physical or digital products online, at some point you’ll experience a chargeback no matter how good your customer service is or how great your products are.



Customer disputes are a reality of accepting payments. But that doesn’t make them any less frustrating. But buyers who use a credit card through Paypal actually represent a doubled chargeback risk for merchants, since those customers can file a chargeback with their credit card company or file a dispute directly with PayPal itself. Chargebacks are a complex, expensive and aggressive problem.


Now before I begin, I want to explain the definition of a chargeback. As you know, whenever you buy anything with a credit card, the credit card company protects you from any sort of fraud that a merchant might commit.

This includes incorrect amounts charged to your card, failure to deliver the goods as promised or shipping faulty or damaged products. When any of these things happen, you can call your credit card company and they will issue you a refund if certain conditions are met.

This protection is one of the primary reasons why I always use my credit card to make any large purchase.

However as with everything in life, credit card chargebacks can be abused by your customer at your expense whenever you sell something online.


First off, I want to say that my online clothing only receives 2 or 3 chargebacks per month, and my win rate on those chargebacks in approximately 95%. 


Reasons for a Customer Filing a Chargeback

Some chargeback claims are legit but there will always be customers who abuse the system. The amount of sleazy customers that you have really depends on your clientele and what you sell.

My buddy who sells electronics has had many more problems than I’ve had because there are many more ways to complain about nonfunctional electronic merchandise.

That is why I always stress that it’s important to sell something that isn’t fragile or easily damaged during shipment.

Most chargebacks usually involve one of the following situations.

Credit Not Processed
Another common type of chargeback occurs when the customer may have returned the merchandise to the merchant (e.g. when the cardholder receives an item different from what he expected), requested to get their money back but said credit was not posted to their account. In these situations, merchants are also held liable for the charges.

Item Not Received
This is one of the most commons reason for chargebacks today. This happens when the customer did not receive the item which they paid for by credit card. As in the previous situations, the merchant is charged accordingly.

Technical Problems
Many chargeback requests are due to technical problems during the payment processes. Technical problems between the issuing bank and the merchant may lead to cardholders being charged twice for the same transaction (termed as duplicate processing). Problems with the authorization process can also lead to account being charged, even if the transaction was declined.

These are the four main reasons for chargebacks. There are a few more detailed reasons, which can be attributed to situations such as faulty cards and human errors made during the payment process. These cases, however, may be beyond your control as a merchant.

Fighting Chargebacks for Physical Products

On the surface, you would think that fighting a physical product chargeback would be easy and straightforward. You simply send the credit card company proof of delivery and voila! You win right?

Not quite…

Just because you have proof of delivery does not mean you will win. In fact, if the customer is deliberately trying to defraud your company, you must take active measures to not lose money. Here are a bunch of things you can do to prevent chargebacks.

  • To prevent undelivered product claims, the solution is simple. Use a delivery service that offers delivery confirmation. FedEx and UPS offer it for free and USPS offers a notification service at a minimal cost. This is required!! Don’t go cheap and not pay for it because you will definitely be asked for this information.
  • If the order is greater than $250, always pay for signature confirmation. Having a signature on the package will help fight claims where the customer claims the order was never received even though it’s marked as delivered.
  • To prevent broken merchandise claims during shipping, always purchase shipping insurance if your items are fragile. If the goods arrive at their destination with visible damage to the packaging, have the customer refuse shipment or have the carrier return to sender so you can file a claim.

Make sure you clearly document the timeframe with which to handle these claims and make sure that the customer doesn’t throw away the packaging. Usually, the insurance process takes a long time so you need to file a claim asap.

  • To handle claims of broken merchandise not caused by shipping, you can do one of two things. You can have the customer contact the manufacturer directly if the item is under warranty or you can have them ship the item back to you. Once again, make sure your return policy is very clear about the timeframe and the RMA process.
  • If the customer claims that they never ordered the product, make sure you have clear documentation of their order. Never ship any merchandise to an address other than the billing address for the credit card.
  • Finally if a customer claims to have made a return, ask for a confirmation number. If they can’t produce one, then the credit card company will likely not issue a chargeback.

When You Can’t Obey All The Rules

While most of the items above are common sense, there are times when you can’t obey all of these rules without potentially pissing a customer off. For example if you refuse to ship to a different address other than the billing address over the holidays, you’re going to lose a lot of business.

This is when you have to do some due diligence for yourself and make a judgment call.

First off, any customer who makes a large order and pays for rush delivery to an address other than the billing address REQUIRES scrutiny.

Here’s what I do for all suspicious orders.

  • I check the IP address of the customer. If the delivery address is in the United States and the IP is somewhere outside of the country, it’s a huge red flag! I almost never ship the order. We do this check manually for certain orders but you can use a service like MaxMind to do this check automatically with your shopping cart. If you sell high ticket items like electronics, then it’s probably worth the money
  • I call the customer. Especially if the order needs to be rushed, I’ll call the customer and ask exactly what their deadline is and why they need their items so quickly. From there, it’s a judgement call based on your conversation. If the person seems legit, then go ahead and ship the order.
  • I stalk the customer. You’d be surprised how much information you can find about an individual just by doing a few searches online. Sometimes an innocent Google search may turn up a scam. In any case, I do the “customer stalk” as a last resort if I’m still not sure about the validity of a purchase after doing the first 2 items above

Fighting Chargebacks For Digital Products

Winning a chargeback for a digital product is much much harder than winning a chargeback for a physical product. With a physical product, you have proof of delivery but with digital, you basically have nothing but a receipt.

That is why you have to go out of your way to track people who buy your digital goods if you want to have any hope of winning a chargeback.

Here’s what I do.

For context, I run a membership site called Product Mafia, you probably heard of it? When anyone accesses my info product, they have to login.

Whenever someone logs in, I track their IP address and every single page that they’ve accessed on my site and for how long. If you ever get a chargeback, you may need to show all of this activity to the credit card company.

One of the ways I track digital customers is by using a service called Now this service was intended to be used as an email marketing tool that triggers based on user activity. However, it works really well as a customer tracking tool and it’s 100% free! Here’s an example of what can tell you

I also track customer behavior in Google Analytics by using custom variables that allow me to know who is doing what. Finally, I also keep track of all email correspondence and forum usage on my site.

The last 2 chargebacks I received were from people who claimed that “they never signed up for the class”. So when I got the chargeback, I pulled server logs of every one of their sessions, their IP address and a copy of all email correspondence.

The IP address they used to make the purchase matched their location and all of the logins occurred from the same IP address. When I presented the evidence to the credit card company, they denied the chargeback.

The Key to Winning Chargebacks

In general, your chances of winning a credit card dispute are greatly improved if you maintain good documentation. Always handle all correspondence via email if possible so you have a precise record of all conversations.

One other thing that I suggest is to make sure that your store name is what appears on a customer’s credit card monthly statement. When I first set up our credit card merchant account, I set it to a shorthand version of our store name.

This caused some confusion for certain customers because they didn’t recognize our store name in their monthly statement.

I would also go as far as to document the shipping and returns policy on every single document that a customer sees. This includes the invoice and at least a mention during the checkout process.

Consider these tips to avoid potential Retrieval Requests and Chargebacks:

  • Duplicate Transactions
    Ensure that transactions/orders are only made once. Entering the same transaction more than once (by customers pressing the back button or clicking on the Checkout button more than once), can result in “duplicate transaction” Chargebacks.
  • Refund Policy
    Your refund policy should be clearly visible on your website. Make it a requirement that customers read the policy before their order can be processed.
  • Refund in a Timely Manner
    Failure to process credits in a timely manner can result in Chargebacks for “credit not issued.” Also inform your customer on how long it will take before the refund will hit their account.
  • Cancelling a Rebilling
    If a customer requests cancellation of a recurring transaction which is billed periodically (monthly, quarterly, annually), always respond to the request and cancel the transaction immediately or as specified by the customer. As a customer service, advise the customer in writing that the service, subscription, or membership has been cancelled and state the effective date of the cancellation. Failure to respond to customer cancellation requests almost always leads to Chargebacks.
  • Contact Information
    Your contact details should be clearly visible on your website. Including a physical address and a telephone number, so not just an email address or contact form.
  • Shipping Policy
    Your shipping details should be clearly visible on your website. If your customer knows when they will receive their product they will not issue a Chargeback because they feel ‘it has been too long’ and they ‘should have received the product by now’.
  • Order Status Update
    Keep customers informed on the status of their order.
  • Delay in Shipping
    If the merchandise or service to be provided to the cardholder will be delayed, advise the cardholder in writing of the delay and the new expected delivery or service date.
  • Out of Stock
    If the merchandise ordered by the cardholder is out of stock and delivery will be delayed or this item is no longer available, advise the cardholder in writing and offer the cardholder the option of purchasing a similar item or canceling the transaction. Do not substitute another item unless the customer agrees to accept it. By giving the customer notice and the option to cancel, you may help avoid a customer dispute regarding the merchandise and a possible Chargeback.
  • DBA on Customers Statement
    Use a clear DBA (Doing Business As) name that customers will recognize. Vague corporate names that do not accurately describe what your company might do or sell will only confuse customers when they review their billing statements. An unrecognized DBA name on billing statements is one of the most common causes of Chargebacks. Inform your customers on your website what the billing name on their statement will be: “Please note: Our billing name on your statement will be: …”
  • Phone Number on Customers Statement
    Put your phone number on your customers’ statements. If they do not recognize your DBA, they can call you to find out who you are and why you charged them.
  • Responding to a Retrieval Request
    Always respond to a Retrieval request as quickly as possible. A limited amount of time is available to resolve a dispute. If you miss the window of opportunity to respond, you forfeit your ability to fight the Chargeback. If your processing bank has any more questions or requests, your quick response will ensure that they have enough time to get the relevant information from you.
  • Customer Satisfaction
    Some disputes are not the result of unauthorized credit card use. Rather, they start because the customer disputes the quality of the goods or services purchased. The best way to avoid this type of Chargeback is to work closely with the customer to establish a mutually satisfactory solution.
  • Contact Suspicious Orders
    Call, fax or email any large or suspicious orders to ensure the order is legit. If you are unable to reach the customer, you might have intentionally been given incorrect contact information. Issue a refund to prevent a Chargeback by the credit card holder.
  • High-ticket Sales/Fast Delivery
    Be suspicious of high-ticket sales requested to be sent next-day air or if a runner will be in to pick up the purchase at a later time. Be wary of orders for which the customer is willing to pay more for faster delivery.
  • Verify the Customer’s Address
    It is possible to verify the customer’s name, address and phone number with the card-issuing bank. By calling the Voice Authorization Center for address verification, you can verify the address and also provide proof that you verified the address.
  • Always Get Signed Proof of Delivery
    Be able to provide a shipping tracer log that shows that the customer received the shipped goods.
  • Product Information on Website
    Provide accurate descriptions and images of your products on your website.
  • Foreign Orders
    Be very cautious of any foreign orders. Generally, orders from Asia, the Middle East, and most parts of Africa are considered high-risk.
  • Different Billing and Shipping Address
    Be wary of orders with domestic billing addresses and foreign shipping addresses. They are usually fraudulent.


David Linder

David Linder

MSc in Marketing from the University of Salford. Facebook Certified Planning Professional Facebook Certified Buying Professional

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