Tea Shop Chargebacks and Return Policies

Let’s say you own a small online tea business. You buy bulk teas, mix unique combinations, and sell them at boutique prices. You have a good holiday season, bringing in enough profit to start thinking about expanding in the new year … that is, until you open your bank statement for February and realize that a huge chunk of money is simply … gone.

At first you think there must be some kind of mistake. An hour on the phone with your bank, however, and you realize that everything is according to Hoyle. The bank itself actually took the money out of your account to cover chargebacks.

Chargeba-who-what now?

A chargeback is when a customer asks their credit card issuer (the bank whose name is on their credit card) to reverse a transaction that has already cleared—sometimes months earlier. This is different from a refund in that the credits are returned to customers regardless of whether the cardholder returned a purchase … and sometimes, regardless of whether the reason for the return is legitimate.

Also, there’s usually a time limit on returns; most merchants want returns to happen in 15 to 60 days. There are time limits on chargebacks, too, but they are often much more flexible: banks are primarily concerned with keeping their customers happy, so they’re likely to work around their own rules. That makes chargebacks even more insidious, since you as a merchant can’t count on them to be consistent

While having the same percentage of returns would certainly not be welcome, merchants pay far more for chargebacks. As we mentioned, in a chargeback situation, the customer keeps the merchandise and the refund, including any shipping costs: those come straight from the merchant’s till. And to add insult to injury, the bank also charges the merchant certain fees to cover the administration costs of a chargeback.

So why would a customer call the bank instead of calling the merchant? Well, chargebacks happen for a variety of reasons. Some of them are valid customer concerns, such as an item not matching the description, errors in processing the transaction, the buyer never receiving the item paid for, or an unauthorized payment made with the buyer’s card (identity theft).

In these types of situations, it’s highly possible that the cardholder is innocent of intent; sometimes, they mistakenly think of a chargeback as being synonymous with a return. In other cases, they may’ve simply called the bank because they didn’t recognize a charge on a statement, and the bank took it from there.

Of course, there is also an increasing number of people who engage in what is known as “friendly fraud,” where consumers request chargebacks without legitimate reason … or in some cases, make a purchase with the specific intent of initiating a chargeback. Think of it as “cyber shoplifting.” There’s not much merchants can do to combat that until the chargeback is actually filed (by which point you’re stuck with the fees, regardless). While they can be challenged by the merchant, such cases are complicated and hard to win: again, banks are more likely to side with consumers.

In the case of consumer misinformation, however, it’s far better for the merchant to work to prevent chargebacks from happening by engaging customers. One of the best ways to do this, believe it or not, is to have an easy, effective return policy.

For example, check out the return policy of global retailer illy:

We offer a 30-day satisfaction guarantee. If for any reason you are not happy with your purchase, you may return the products(s) within 30 days of receiving the order for a full refund of the merchandise cost.

Immediately below that, you’ll find simple, step-by-step instructions on how to claim your refund. This type of clear, concise, no-nonsense policy on returns can go a long ways toward mitigating the risk of chargebacks: if customers feel you are ready to work with them, they may not be as quick to turn to the bank for satisfaction.

Here’s another example, from teacollection.com:

You can return any Tea product purchased on TeaCollection.com at any time for any reason. Sale items, too.

Not much to misunderstand there.

Having a no-hassle return policy increases customer confidence. But simply having the policy is hardly effective if no one knows it exists. Make sure your policy is easy to find on your website, on brochures, in emails and invoices, and even on your packaging, if possible. The more customers see it, the more they’ll remember it. And the more likely the are to work with you, the fewer chargebacks you’re likely to see in the future.