Category: Payments as a Service

It’s hard enough running a small-medium business before you even begin to contemplate credit card fraud and illegitimate refunds.

Sadly, chargeback fraud is not just prevalent nowadays, but it is also increasingly common, therefore we wanted to dive into the subject and share some advice on how to avoid chargeback fraud.

What Is A Chargeback?

A chargeback is when a customer has successfully claimed a return of funds from a purchase which they have disputed.

The transaction reversal works by the bank withdrawing the funds that were placed into the sellers bank account.

If the recipient can successfully dispute the charge as invalid then a bank will apply the chargeback.

This may occur if an item was not delivered or arrived damaged. This can also prove useful for customers if the merchant has ceased trading.

Also, if the seller isn’t responsive to messages from a customer, such as if the items didn’t arrive, then they can take the next step by completing a chargeback claim to the card provider.

What Is The Chargeback Process?

The first step involves the cardholder filing a chargeback to the issuer bank the card matches. There are template letters online, while often this can be done with online banking nowadays.

Following this, the issuer bank reaches out to the acquire bank to file a chargeback request. The acquirer bank will then reach out to the merchant, detailing the request and it will then fall on the merchant to either accept the chargeback or battle it.

This is where the process splits, if the merchant simply accepts the claim, then they lose the chargeback, plus a fee, while the money is credited back into the customers bank account.

However, if the claim is deemed to be invalid by the seller, they can contest it and will then have to provide sufficient evidence to the bank.

The evidence could involve a photo of the buy receiving the item, or evidence of a signature, depending on the nature of the claim.

The acquirer bank will forward this evidence on to the issuing bank, who will then review it to see whose claim is to be believed.

If the cardholder is believed, then the chargeback will go ahead, whereas if they believe the seller then it will be passed on to pre-arbitration, where the buyer and seller can have another chance at resolving the situation. Normally, new evidence would be required for a verdict to be changed.

What Is Chargeback Fraud?

Let’s say you sell a product to a customer, the fraudster then contacts their bank to dispute the purchase and requests a chargeback, despite the product arriving successfully.

These fraudulent claims are relatively new, since the launch of online retailing, while they are becoming increasingly present with the growth of e-commerce.

When May Chargeback Fraud Occur?

You may find that your business is hit with fraudulent activities if any of the below occurs:

• A supposed customer claims that they haven’t received an order, despite it arriving
• They claim to the bank that they hadn’t authorised this payment
• If it’s a subscription payment or a recurring payment, they may claim that they cancelled but their request wasn’t met
• If the item didn’t meet the acceptable terms of the Trade Description Act 1968/2011, then they can claim against this, despite the product meeting the attributed description
• If they claim they returned the product to the seller but the return was never processed

How Much Does A Chargeback Cost?

This is the reason why many online businesses are struggling. Because not just do they lose out on the revenue from the sale, they also lose the item that they were selling, plus there are added fees.

On top of this, if your business is repeatedly called out for chargebacks, you may receive added penalties.

Over time, you may be considered ‘high risk’, which can make it even harder for your business to run, however we can certainly help with high risk merchant accounts and high risk business accounts.

In the UK, a chargeback fee is often around £10-£20 per claim, while in the USA it is somewhere around $20-$50.

If your chargeback ratio increases too much, with many having a threshold around 0.6%-0.7%, you might be placed on a monitoring programme and the monthly fees will then go up until the ratio drops back further.

So all in all, you’ve lost on the sale, the inventory, extra charges and general operational costs to handle the process.

How To Prevent Chargebacks As A Merchant?

It can be incredibly hard to decipher between genuine customers who have had a bad experience, such as a product not arriving or being damaged, and the dishonest claimants who are trying to save some money.

Many business owners will weigh up the pros and cons of claiming against a chargeback and will leave it, but it is important to battle any disputes you may have, to deter these fraudsters from continuing this act.

Many brand representatives have spoken about repeat abusers, where someone will make multiple claims, knowing they got away with it the first time.

So how do you protect your business against chargeback fraud? Well some of the steps below can help:

• 3D Secure – This added step means the customer has to take an added step as they’re redirected to their bank’s website to authenticate the payment. A code might be sent to their phone or they might have to enter a password. This form of 2-factor verification is becoming commonplace and customer expect it, so you don’t have to worry about frustrating people at the final step of the purchasing process. You can also set certain rules or filters based on what products will require 3D secure, while there are solutions in place that can target high risk transactions.
• Thorough Checking – It might sound like a long and arduous process, but you should be checking over your orders and look for orders that ring alarm bells, as they don’t appear like a usual customer. It could be a large number of items being ordered at once, or orders being made in quick succession. Another thing you could look out for could be orders with different card numbers but the same address. You can reach out to the cardholder to verify a few details about their order and it is completely up to you if you complete their order or simply offer them a refund instantly before sending anything out.
• Make sure to get a transaction receipt via the payment gateway. These will include the Address Verification Service (AVS) and Card Verification Value (CVV), to ensure the address and card details matches that of the card holder. It might be off-putting for the customer to put in more details, but you want as much security at the checkout as possible. Partnering up with a payment provider will allow you to integrate AVS and CVV onto your e-commerce website.
• Product Descriptions – it is completely possible that your product descriptions simply don’t match up to what is provided. It could be that the size dimensions aren’t stated clearly on the page, that the colours aren’t clear from the photo used or that the description might be a little far-fetched to increase interest in the product. Don’t oversell the product, they’re on the page because they’re already interested, you just need to provide the facts.
• Contact Details – Make it as easy as possible for customers to reach out to you, whether that’s a phone number being provided, having an email address that is checked regularly, or if you have the resources, you could have an instant chat available (but make sure someone can respond efficiently otherwise they’re not worth it and may cause more frustration for the customer). Ideally, you will be able to resolve the customers issue before it gets elevated to a chargeback request.
• Confirmation Email – Once someone has successfully made a purchase on your website, you should have an automatic email that goes out to them detailing the product they have ordered, the amount they have spent and when they should receive it. If they’re committing fraud, they might claim they forgot they made an order or it wasn’t authorised, whereas this helps to prove that wasn’t the case. If they’re a legitimate customer, this can help as a reminder of all the details around the purchase.
• Signature/Photo On Delivery – Once the product has arrived, you should get a signature from the customer, while you should also get a photo of the product just inside the house with the door open, to show that they 100% received it. This proof of delivery is arguably the best tool you can use to demonstrate the product was received at the correct address.
• Open Banking – Open banking helps you to move or manage your money, using 3^rd party access to financial data with API’s, so you can see consumer banking information. This form of secure account information sharing can help to prevent fraud, while there also isn’t a chargeback mechanism in place.
• Research Chargeback Codes – You might think ‘I’ve already done this’, but did you know the codes can change each year? It’s important to stay on top of the codes, so you know the reason the claim is made and how you can successfully dispute it. On top of this, if a consistent chargeback code keeps applying, then it could hint to an issue which you might be able to tackle to prevent future claims.

Different Types Of Chargebacks

It’s important to understand the fine lines between the different forms of chargeback that might occur.

Merchant Error

Let’s face it, not every claim is illegitimate, many will involve an error either being made by the merchant, such as a poor product description or sending out the wrong product, or it could be the delivery service, where they delivered to the wrong address or left it outside and it went missing.

Criminal Fraud

This could occur if someone’s credit or debit card has been stolen, or the details for their card has been stolen and they’re making orders without the cardholder’s permission.

A claim would then be put in by the legitimate customer once they have seen payments leave their bank account for something they haven’t ordered.

This is why it is important to look for ‘red flags’ with the customers information, such as the delivery address not matching the usual address or the bank account address, or the orders being an exceptionally high number of items.

Friendly Fraud

This is known as friendly fraud as it is purchased by a real customer rather than a scammer, however they dispute the charge with the bank. They will often use believable excuses such as the product not arriving or whether they didn’t approve the purchase, making it hard for banks to deny.

The majority of chargeback fraud is ‘friendly’, even though there isn’t anything friendly about this practice. It’s simply used as the person is an authorised cardholder rather than someone pretending to be one.

A growing area is ‘family fraud’, especially with children making orders on their mobile phones using a parent’s credit card details. They will dispute that they never authorised the payment and make a claim for their money back.

It is important to understand as well that not all friendly fraud claims are people trying to run a scam, it could be that they simply don’t remember or recognise the payment that went out from their bank.

This is why it is sometimes known as ‘accidental fraud’. This is why it is important to have you contact details available and to have strong customer service skills, in order to handle the complaint sufficiently before they raise it to a bank.

Credit article: Modern World Business Solutions

Managing cashflow as a small business is critical to staying alive, especially if you’re in the first two years of running, where money can be tight, so it is critical you handle cashflow sufficiently.

Many of the most well known brands had cash flow issues in their earlier days as they balanced operational and growth costs with incomings.

We have therefore created a list of tips, but first, let’s go over the basics.

What Is Cashflow?

Cashflow is the net amount of money and cash equivalents going in and out of a business, effecting liquidity.

Cash flow will either be positive or negative, which can be found by calculating the incomings versus the outgoings from the opening balance to the closing balance.

If positive, you have more cash at the closing point than you did at the start of the period, whereas if it is negative then you have less cash.

Cash flow statements are therefore prepared to analyse where the cash is flowing in and out of the business

Why Is Cash Flow Important?

Understanding the payables and receivables can help to highlight whether you can cover your costs or whether you will have to find ways in order to increase cashflow into your business.

Failure to pay your bills on time can lead to late payment fees, you may face credit issues or struggle to pay your employees on time.

Therefore, by conducting a thorough cash flow analysis, you can work out what periods your cash flow will be negative and potentially find ways in which you can improve the speed at which money is brought into your business to cover those costs.

We have created a list of tips from our team of experts on how to improve cash flow for your business:

1. Offering Discounts For Early Payments

You can offer your customers an incentive or a discount if they pay their bills ahead of the set due date. The buyer can save money on their purchase, while you can gain funds more quickly, therefore both parties are happy with the outcome.

This may take the form of an email sent out to customers that receive 30-day invoices, stating that they can pay 1-3% less (depending on amount chosen) if they pay within 10 days of receiving the invoice.

You may alternatively want to give them a call so that you can directly reach the person in charge of payments and can ensure the email simply doesn’t get lost.

It’s important you work out your profit margins so you don’t eat too much into this before offering a reduction, while you also need to effectively communicate this discount to your customers so they’re motivated to quickly take action.

2. Send Invoices As Soon As Possible

Your customers might be ready to pay, however they simply can’t pay until they have received an invoice, so don’t delay this task and get it done as soon as possible.

Considering your terms will often state that payment must be made within a certain amount of days from the invoice being issued, for every day you’re not sending over the invoice, you’re adding to the length of time until you might receive payment.

Some brands fail to send invoices until the end of the month, however this might not be in your businesses interest if you require a continual cash flow to cover new costs.

3. Chart Of Accounts

As they say, failure to prepare is preparing to fail. You must have a Chart of Accounts (COA), which is a comprehensive list of financial accounts setup, allowing you an overview of where your business is spending or earning money.

This will also prove useful for a book-keeper to keep track of incomings and outgoings, detailing expenses, revenue, liabilities, equity and assets.

4. Cash Flow Forecasting

Before jumping ahead into the day to day tasks, you should spend some time forecasting the money that will be coming in and going out of your business on a weekly and monthly basis.

This should be set for a 3 month period, however in the long run, you might want to set this for 6 or 12 months, to offer a greater overview.

By conducting a thorough forecast, you can easily spot periods of time where the net cash balance will be negative, therefore you can plan around this and conduct some of the recommendations on this list.

The forecasting shouldn’t be produced once at the start, you should continuously update it, as well as adding accurate details of expenses and invoices with your bookkeeping. How often you update your forecast will largely depend on how much you might be relying on a positive state of cash flow to sufficiently run your business.

5. Offer Multiple Payment Options

You need to make it as easy as possible for your customers to pay you quickly. It could be that a simple bank transfer is ideal, or they might want to pay via PayPal, while you may want to have a mobile card machine in place.

One other great option is to have a pay by link message you can send to customers, so all they have to do is click through and input their details to promptly make a payment.

If you don’t have a pay by link option available, then make sure to check out our merchant panel to allow for pay by link pages, while matching your companies colours and branding. This could also be handled through a virtual terminal.

We have also seen a growth in QR code payments, taking you straight through to the purchase page after scanning the code with your phones camera.

6. Make Your Idle Cash Work For You

It’s common for businesses to have idle cash sat in the bank, waiting for a rainy day when it will be needed, but other than some miniscule interest rates you might be getting from the bank, there are much better ways in which it could earn you extra revenue.

You could invest the money into growing your business, you could put the money towards marketing, so you have a greater customer base and an increase in sales, while you could also look to placing it in a high interest rate account.

Just the same as you offering discounts for early payments, you could look over your expenses and see whether any of these businesses will offer a discount for early payments, allowing you to pre-pay these off.

If you have excess funds available, you could see whether buying a larger quantity of stock could lead to a greater discount per unit.

But as always, we would express caution about spending funds unless you’re confident they won’t be needed.

7. Highlight Penalties For Late Payments

We previously highlighted the incentives you could offer in order to achieve an early payment, but on the flip side of this, you can get equally good results by highlighting the punishment for late payments.

If you charge a hefty fee, this might scare people into paying early, in case they forget to pay on time.

This could take the place in the form of an email highlighting that they have ‘X amount of days left to pay’ and then covering the costs for late payments.

Remember you can’t add these fees later on, they have to be clearly stated at the point at which the sale is made, so the customer is aware of any late payment fees that will be applied.

8. Consider Leasing

Whether it’s a company car or equipment for the office, leasing can lower your initial costs, allowing you to spread them out over a number of years, meaning it will be easier on your cashflow.

While it means you won’t own the asset at the end, for many SME’s, initial costs can be catastrophic, so by leasing instead of buying, they can ensure they have a healthy cashflow and not waste too many funds until they have a greater level of revenue to cover these costs.

9. Second Hand Purchases

Whether it’s office chairs and desks, printers or folders, many of these can be found second hand for heavily discounted prices or even for free.

You can find some great deals for office equipment on Gumtree and Facebook Marketplace, while Gumtree even has a ‘freebie’ section.

SME owners often want to buy new stylish equipment when they launch their brand, but your revenue could be used for much more critical purchases elsewhere, so don’t worry about ‘looking the part’ and instead focus expenditure on what will provide you with the greatest ROI, such as PPC ads.

10. Increase Your Prices

Many companies don’t want to increase their prices, as they’re worried this increase will put off customers, however it might be imperative to cover your costs.

You should have a look at the market and work out what others are charging. You might need to increase your profit margin, or maybe you’ll have to go back to the suppliers to see if you can work out a better deal.

A freelancer might raise their prices for clients by 10%-20% and while they may lose a client, the concept follows that they should still keep most of their clients, while the added income means they earn more per day and they can now look to gain a new client for that extra time available at a higher rate.

The perceived value concept is truly fascinating. By keeping your prices low, you may be creating an image in the buyers head of it being a lower value item.

By increasing your prices, the perception of value can completely change. An example of this is with Peleton, where they were struggling for sales when charging a lower amount, so they increased their prices by 66% and the sales actually increased.

11. Sell Off Obsolete Or Poor Selling Stock

Not every product you try to sell will be a success. You may have a number of products in a warehouse burning a hole in your wallet, as they cost to be kept, while they’re not earning you any money on your initial investment.

It might not be products you’re struggling to sell, it could be items where the Use By Date or Best Before Date is getting closer, or it could be items that are now considered outdated.

You could therefore look into ways of selling these off so you can still turn a profit, or at least get some revenue back so you can re-invest it.

You might want to put a discount on these products on your website, or you may want to create a clearance page or a special offers page.

Alternatively, you could send an email to your customer base offering them a unique discount on these items, therefore creating the feeling of value to email subscribers while helping you to push out old items.

To successfully sell off these items, you should do a stocktake or go through your systems to see any products which you’re struggling to shift.

12. Check Account Payable Terms

Sometimes it doesn’t pay to be efficient, you may want to have a read through the accounts payable terms, which is the terms for payments going out of your business.

It is quite possible you’re paying before a payment has to be due, whereas by holding onto the cash till a later point, it could help you to balance the books in the short term.

Also, many vendors are happy to negotiate on the payable terms if you let them know in advance, so you can see if you can extend the payment terms to prevent a cash shortage.

13. Analyse Unnecessary Costs

Over time, the vast majority of businesses will find they have costs for services they no longer need or they’re not making the most of, or for products they don’t use. They may also have costs that aren’t a top priority when cashflow is tight.

Some of these examples are included below:

• Software – Brands will often sign up to a number of software platforms, for marketing, accounting and many other reasons, which will charge a monthly fee, but if they’re not being utilised then it might be time to ditch them.
• Company Incentives – Whether it’s monthly music subscriptions or luxurious items, these can help improve employee morale, but at times of tight spending, they might not be the top priority.
• Trade Show Payments – Trade shows might be a great way to increase awareness of your brand or to help get you in front of buyers, but the costs involved can be hefty and they might not be imperative if you’re struggling to balance the books.
• Marketing Costs – Marketing is pivotal for increasing traffic and sales for your business, however not all efforts are successful. If you’re running PPC ads at a profitable margin or you’re investing in SEO to grow your businesses online presence, then it will most likely be money well spent, but if you’re spending a fortune on social ads without seeing a great ROI, then it could be worth cutting back, at least temporarily.

14. Run Credit Checks

It is commonplace for a customer to not want to cover a cost in cash, especially with the growth of Buy Now Pay Later (BNPL) schemes. But you need to ensure they have the means in which they can cover those monthly costs, so you should always run a credit check on anyone you’re providing credit for.

If they have a poor credit rating then this might be someone who will miss payments, therefore messing up your cashflow forecasts and potentially pushing you towards being in a negative position.

You can setup systems and processes in order to make more informed business decisions based on a customers financial position and history, to ensure they fulfil their credit commitments.

15. New Sources Of Income

Great ideas can come from anyone in the team, so it could be worth setting some time aside for the employees to debate different avenues for revenue.

It could be ways to upsell products during the sales process, ways in which costs could be cut or ways to expand into a new market.

You might find that you could highlight a provided service when selling a product, or you could push the sale of other products that work well with the purchased product.

Increasing your customers order value can be even more worthwhile than finding new customers, which is a costly act if running ads.

16. Increase Your Conversion Rate

If you had 1,000 visitors to your website in April and 10 made a purchase, that would mean you had a conversion rate of 1%.

By looking at Conversion Rate Optimisation (CRO), you might find ways in which your website can be improved, to increase the number of sales from the same amount of visits, such as a smoother purchasing process, a faster page speed load, less pop-ups or less steps in the purchasing funnel.

A 1-2% increase could make a significant difference to your cashflow situation. Making these CRO changes won’t just increase your sales, but it could also increase your customers lifetime value, being how much you earn from them through every purchase they make with your business.

You may also learn more about your customer base and can then improve your website in the future, while it will also help to improve the ROI on any PPC ads you’re running.

17. Merchant Cash Advance

A small business loan from a bank or a merchant cash advance can help to cover your costs in the short term so you don’t face any liquidity issues.

Your eligibility is based on your previous card sales history, while unlike taking a small business loan with a bank, you won’t have to secure it against an asset like your house.

18. Diversify During Seasonality

All brands will have peak periods for certain products. If you’re in the travel industry, then January is the peak period, often making twice as many sales as any other month, for the summer ahead.

The issue is ensuring you’re earning money during the quieter months, which is why diversifying your business during this period can help to increase cash flow.

An example could be an ice cream truck, which achieves incredible sales figures during the summer, but if they sold the same products during the winter their sales figures would decrease significantly, therefore they could diversify to sell hot food such as burgers or hot dogs during the colder months.

Not all diversifications are based on completely new areas, you could horizontally diversify, by offering new products closely associated with your current products, such as a pyjama company introducing a line of slippers or a children’s pyjama selection.

19. Establish Methods For Debt Control

It’s not something you want to think about, but not all payments will be received on time and at that point, you need a debt recovery process in place.

Once they’ve passed the agreed set payment date, then you should chase up on the invoice. You may also wish to apply a late payment fee to the total cost.

Once you have provided a final notice, you can then begin legal proceedings to settle any outstanding payments.

This may involve you going to a small claims court, or you may wish to utilise a debt collection specialist.

20. Learn Customer Payment Cycles

If you’re B2C then this might not be as relevant, but if you’re B2B then the companies you deal with might pay invoices on a set date.

By adjusting your scheduling of invoices and ensuring you get it over to them in time for their payment window, this will ensure you get paid efficiently.

This is an important step in credit control system which is often overlooked by most businesses, but if you miss their payment date, you may have to wait another month.

Credit article: https://mwbsolutions.co.uk/latest-news/