The Chargeback Lag: What It Is, and How It Impacts Your E-Commerce Business

Chargebacks are designed to protect consumers against suspicious transactions, but they also have serious financial ramifications for e-commerce merchants.

These chargebacks, which let credit card issuers return funds to customers who dispute a transaction’s legitimacy, can have even longer-lasting effects on an e-commerce merchant’s bottom line and reputation.

And what makes chargebacks even more dangerous is the chargeback lag – the 45 days between the time a chargeback occurs and the date the merchant is notified. This delay creates numerous problems for merchants, making it even more important to minimize chargebacks from occurring in the first place.

How the Lag in Chargeback Fees Impacts E-Commerce Businesses

Chargebacks are more than a simple inconvenience. They can also affect a merchant’s short-term financial health through:

• Fines and fees
• Lost revenue and shipping costs from the original sale
• The time and expense of personnel addressing the disputes

But that’s just the beginning. As the chargeback proceeds through its lifecycle, businesses can find themselves dealing with the fallout — like distorted financials, unplanned losses and masked fraud attacks — months later.

This lag means that revenue earned today can’t be confidently (and accurately) recorded until after the chargeback window has passed; it also means that financials and actual performance can be distorted for months as merchants navigate the accounting of chargeback losses.

But beyond increasing financial reporting inefficiencies, chargeback lags:

• Mask the source of fraud. Because of the delay, merchants may not realize they’ve become a fraud attack victim until it’s too late. This makes it virtually impossible to identify how the fraud occurred, respond to that instance of fraud and prevent future attacks.
• Prevent recourse. Because merchants aren’t notified of chargebacks until months after they happen, they can’t promptly respond to the claim and must absorb losses that come long after the original transactions.
• Are masked by high sales. During times of high sales, such as during the holidays, chargeback rates may appear low. But when sales level off, chargeback rates seem to climb because of the chargeback lag.

Increasing Profitability by Eliminating Chargebacks

Reducing chargebacks can have dramatic (and positive) effects on a merchant’s bottom line. When chargebacks are anticipated and prevented, businesses can see increased revenue from:

• Minimizing fraud losses. Through a comprehensive fraud protection program, merchants can more reliably flag and stop questionable orders, reducing lost revenue and the personnel cost of using valuable staffing resources.
• Avoiding chargeback costs. When merchants can voluntarily issue customer refunds to avoid chargebacks, they also avoid the associated fees and penalties.
• Improving the customer experience. When merchants proactively prevent fraud and subsequent chargebacks, they can improve customer trust and solidify relationships.

• Approving more transactions. When merchants employ a trusted fraud protection solution, they can confidently approve more transactions, knowing their comprehensive fraud protection will shield them from chargebacks and product losses.

What Merchants Can Do to Prevent Fraud and Chargebacks

Without an effective fraud protection strategy, merchants find themselves at the mercy of chargebacks and their potentially devastating effects.

But not just any fraud prevention solution will do. Business owners must make sure it:

• Meets business needs and can scale with future company growth
• Keeps pace with evolving fraud trends
• Combines machine learning with advanced human analytics to flag and evaluate suspicious transactions in real time before they’re processed and turn into chargebacks
• Offers a 100% chargeback insurance guarantee that covers the merchant if the fraud solution misses a fraudulent transaction.

Implementing an effective fraud protection solution can help merchants save money by minimizing chargebacks and the effect their lags can have on an e-commerce business. Financials that look fine today may not be three months from now. Don’t wait for the chargeback lag to take its toll before taking action.

When it comes to integrating a fraud protection solution into your e-commerce environment, you need to select a solution that will protect you against threats to your revenue today and in the future. Talk with a ClearSale credit card fraud analyst to learn why chargeback insurance should be part of your comprehensive fraud protection and prevention strategy.