Business owners regularly deal with transaction disputes in their operations. They can happen to any merchant at any time for various reasons. In this guide, we will explain a transaction dispute, how it differs from a chargeback, and how to prevent them as much as possible.
What is a Transaction Dispute?
A transaction dispute is a disagreement between a buyer and a seller over a particular transaction, usually involving a payment or a purchase.
Transaction Disputes Table of Contents
The dispute typically arises when the buyer believes a transaction is inaccurate/illegitimate, or the goods or services are defective.
Depending on the circumstances, a transaction dispute can be initiated by either the buyer or the seller. For example, if a buyer disputes a charge on their credit card statement, they may contact their credit card issuer to discuss the transaction. The issuer will then investigate the dispute and reverse the charge if they find it unauthorized, or if the product or service was not as described.
In some cases, transaction disputes may be resolved directly between the buyer and the seller, without the involvement of a third party. In other cases, the dispute may escalate and involve a mediator, an arbitrator, or even a court of law. Resolving the dispute directly with the other party is always best before seeking external assistance.
What are Some Reasons for Transaction Disputes?
There are several reasons why a transaction dispute may occur between a buyer and a seller. It’s important to understand these reasons from the buyer’s perspective if you’re a merchant. Some common reasons for transaction disputes include the following:
Non-delivery of goods or services: The buyer did not receive the goods or services they paid for. This is not always the merchant’s fault, but they often pay the price.
Defective or damaged goods or services: The goods or services received were defective, damaged, or not as described. Again, this could be the logistics company’s fault, but the buyer will typically dispute the charge or request a refund.
Unauthorized transactions: The buyer may dispute a transaction if they did not authorize the purchase, or if their payment information was stolen or compromised. Sometimes, another person in the cardholder’s household will place an online order for something – (think kids making Amazon orders). When the cardholder sees the charge, they may not know that someone in the household made the purchase and assume it was fraudulent.
Transaction not recognized: Sometimes, customers make a purchase and then forget about it, or they don’t recognize the charge on their card statement. If the merchant’s billing indicator is a confusing name, this could happen frequently for that merchant.
Fraudulent transactions: If the buyer suspects fraud or other illegal activity, they may dispute a charge. If their card was lost or stolen, they could have fraudulent charges placed at your business by the criminal.
Billing errors: The buyer may dispute a transaction if they were charged an incorrect amount, or if there were errors in the billing process. This can also happen when a customer tries to cancel a subscription, and the merchant fails to stop the payment and continues to charge them.
Misrepresentation: Those transactions may be disputed if the seller makes false or misleading statements about the product or service. This can also happen when the photos on the website do not resemble the product received.
Delivery delays: The buyer may dispute a transaction if the delivery was delayed beyond the expected timeframe. This can also happen when the merchant fails to communicate the shipping timeline with their customers.
Both buyers and sellers need to be aware of these potential issues and take steps to prevent them from occurring or to resolve them promptly if they do occur. Clear communication and documentation can help avoid transaction disputes and facilitate resolution if they arise.
Transaction Dispute vs. Chargeback
The difference between a transaction dispute and a chargeback is simply the issue’s progression. Typically, a transaction dispute is when a cardholder approaches their bank and claims a charge is fraudulent or an error has occurred. The bank will investigate the situation to determine what happened.
If the bank finds a legitimate reason for the dispute, it will progress to a chargeback, and the money will be taken from the merchant’s account and given back to the customer. If the bank finds no fault on the merchant’s part, the dispute will be closed.
How to Dispute a Transaction
The transaction dispute process can vary depending on the payment method used, the nature of the dispute, and the policies of the payment processor or financial institution involved. However, in general, the process for resolving a transaction dispute typically follows these basic steps:
- Review transaction details: Before disputing a transaction, it’s essential to review the transaction details, such as the date, amount, and purchase description. This will help clear up any errors or misunderstandings. If the cardholder doesn’t recognize the billing indicator (the business name on the card statement), they can Google it to see what it is. This will often remind them of a purchase they made.
- Contact the seller: If there is an issue with the transaction, the buyer should first try to resolve the dispute directly with the seller by contacting them and explaining the issue. This could involve requesting a refund or exchange, providing additional information or evidence, or negotiating a resolution.
- Initiate the dispute: If the buyer cannot resolve the dispute with the seller, they may initiate a dispute with the payment processor or financial institution that handled the transaction. This usually involves filling out a dispute form or submitting a dispute claim online. The buyer may need documentation to support their claim, such as receipts, invoices, shipping information, and communication with the seller.
- Investigation: The payment processor or financial institution will investigate the dispute, usually by reviewing any available documentation, such as receipts, invoices, shipping information, and communication between the buyer and seller.
- Resolution: Depending on the outcome of the investigation, the payment processor or financial institution may take various actions, such as issuing a refund to the buyer, reversing the charge, or ruling in favor of the seller.
- Appeal: If the buyer is not satisfied with the outcome of the dispute, they may be able to appeal the decision and provide additional evidence or information to support their case.
It’s important to note that the specific steps and requirements for disputing a transaction can vary depending on the payment method used, so buyers should familiarize themselves with the specific policies and procedures of their payment processor or financial institution. It’s also a good idea to keep detailed records of the transaction and any communication related to the dispute to help facilitate a resolution.
How Long do Transaction Disputes Take?
The card issuing bank will issue the cardholder a provisional credit within 48-72 hours. But the dispute might not be finalized for quite some time, anywhere from a couple of weeks to months later, depending on the merchant’s and bank’s actions. In some cases, disputes can be escalated to arbitration while both sides decide how to resolve the dispute.
How to Prevent Transaction Disputes
Transaction disputes can have significant consequences for merchants, mainly if they result in chargebacks. However, they can be reduced by implementing some simple steps into your daily operations. Here are some tips to help prevent transaction disputes:
Provide accurate product and service descriptions: Make sure your product or service descriptions are accurate, clear, and detailed. You should include information about any potential issues or limitations of those products and services. It’s also a smart idea to have photos when applicable.
Communicate with buyers: Keep buyers informed throughout the transaction process. You can do this by providing updates on shipping and delivery times and responding promptly to any questions or concerns they may have. Clear communication can resolve a ton of potential issues.
Use secure payment methods: Use reputable and safe payment methods that offer fraud protection and encryption, such as PayPal or Stripe. Not only will customers feel more comfortable purchasing from you, but they will also be less likely to experience any anxiety when they see your business name on their billing statement.
Verify buyer information: Verify the buyer’s identity and contact information for high-value transactions involving new customers. Merchants can implement address verification, two-step authentication, and other anti-fraud tools and tactics.
Maintain records: Keep detailed records of all transactions, including receipts, invoices, shipping information, and buyer communication. If a dispute is filed and a chargeback is pending, the more documentation you have, the better!
Offer refunds and returns: Consider offering a clear and fair refund or return policy, which can help avoid disputes and build trust with buyers. Make this information readily available on your website. Merchants may also want to consider including it in the footer of confirmation emails.
Resolve issues promptly: If a buyer raises an issue or dispute, respond quickly and work with them to resolve the issue to their satisfaction. Again, communication and customer service are key!
Final Thoughts
Transaction disputes are a normal part of life when you run a business. However, you can help minimize the risk of disputes and build positive relationships with your customers by implementing these steps and being easy to contact. Always consider the experience from your customer’s point of view.
