How to prevent chargebacks: 7 tips for reducing payment disputes

When you’re running a small business, chargebacks can seriously interfere with your finances. If a client initiates a chargeback at an inopportune time, it could become difficult for you to pay your expenses or meet your financial goals. 

Thorough project documentation and clear communication can help you prevent chargebacks from going through. Here’s how to avoid chargebacks and how to handle them if they do happen. 

What are chargebacks, and why do they happen? 

A chargeback is when a customer disputes a payment with their credit card issuer. The bank reverses the transaction, taking the money from the merchant and giving it back to the customer. Chargebacks can happen even after the initial payment has been finalized. 

Customers can have legitimate reasons for filing a chargeback. A chargeback serves as protection from fraud, billing mistakes, or unresolved service issues. 

However, some customers also file chargebacks when they’re simply unhappy or experience a miscommunication. Fraudulent clients may also file chargebacks to avoid paying for work after it’s completed. 

Chargebacks are different from refunds. A refund is when a merchant initiates a payment return rather than the customer filing a dispute with a bank. 

7 tips to prevent chargebacks

Chargebacks can be frustrating, particularly when they happen as a result of chargeback fraud. The good news is that you can take steps to protect against chargebacks in your business. 

1. Vet new clients before accepting projects 

Lead forms can help weed out illegitimate clients before your first meeting. If a potential client seems like a good fit on paper, have at least one consultation call before signing a contract. This is an opportunity to learn more about them and build rapport before deciding whether to move forward. 

2. Document client communications 

Keep every email and message from your clients. You can use these messages to prove you and the client had a working relationship in the event of a dispute. HoneyBook’s client relationship management (CRM) tool can help you track every client message in one place. 

3. Make billing details recognizable 

If a client doesn’t recognize your business name on their credit card statement, they might not realize what the charge is for and dispute it. HoneyBook uses your full business name for payment processing, but some credit card companies may shorten it in their systems. If you think this might cause confusion, check in with your client before charging them.

Pro tip

Friendly Fraud: When someone else pays for services on behalf of someone, then issues a dispute if they forget about the charge or don’t recognize it on their statement.

4. Save proof of delivery 

If a client files a chargeback, a proof of good or service delivery can show the bank the charge is legitimate. This could be an email showing you delivered digital services, or photos, videos, or reviews from the client. If you’re shipping a physical product, track it and get proof of delivery. 

5. Use clear contracts

A strong contract defends you against client issues, including chargebacks. HoneyBook’s templates help you create legally binding, industry-specific contracts for every project. 

Some clients may skim contracts rather than reading them in full, causing them to miss important terms. Before the client signs, schedule a quick meeting to review the contract terms so you’re both on the same page. 

Protect your business

Use HoneyBook’s ironclad contract templates to protect your business and clients.

Get started

6. Include cancellation and dispute policies 

A cancellation policy outlines within a contract when either party can end the project and when the client is eligible for a refund. A dispute clause outlines a structured dispute resolution process and may deter clients from filing unwanted chargebacks. 

7. Properly document canceled projects 

When a project ends, document it and archive the client’s account. This is particularly important if your client was making recurring online payments. 

If your cash flow allows, you can also use a delayed billing model and charge for services after they are delivered. This gives both you and your client time to review unusual transactions and resolve problems together.

How to handle chargebacks if they happen

Unfortunately, chargebacks can happen even if you’re diligent in your communication. 

If a client issues a chargeback, start by reviewing the project to determine if their claim is valid. Check the reason code on the chargeback to see why the client initiated it. 

If you failed to deliver work on time or to the standards laid out in your contract, the chargeback may be legitimate. In this case, the client’s bank gives them back their payment. 

If the chargeback isn’t legitimate, you can dispute the client’s claim to their bank to keep the money. To do this, gather evidence that you completed work for the client. Round up your proposals, contracts, invoices, receipts, and communications with the client and submit them quickly. Make sure to note how many days you have to dispute the chargeback to avoid missing the deadline. 

Stop chasing payments, start getting paid.

Send polished invoices, set up automatic payment reminders, and watch 90% of them get paid on time or early.

See how invoicing works

Best practices for documenting work

Clear communication and documentation can benefit your business. Not only do they help prevent chargebacks, but they also help you stay organized and keep projects running smoothly.

Use these best practices to safeguard your business: 

• Record all client communications in detail and keep them in your CRM for reference. 
• Save signed contracts and payment authorizations, even after a project ends. 
• Document every project milestone and client approval even if they are informal. 
• Retain every invoice, receipt, and payment confirmation, and keep them organized. 
• Save email confirmations, photos, screenshots of client reviews, and videos that you can use for proof of product or service delivery. 
• Record any changes to project scope in writing, and use contract amendments where appropriate. 
• Keep your records in one accessible system with security measures like passwords and multi-factor authentication. 
• Regularly back up your most important files and records. 
• Follow industry compliance standards and guidelines for document retention.

How HoneyBook helps you avoid chargebacks

Chargebacks can be frustrating, and documenting every project can help you prevent them. HoneyBook’s all-in-one client management platform keeps you organized to help you limit your risk. You can use the platform’s CRM to track every client message in one place. 

With HoneyBook’s extensive template library, you can also create proposals, contracts, and invoices, then send them to clients in a branded portal for approval. HoneyBook has a built-in payment processor, with the option to use automated reminders to help ensure you get paid on time. 

Try HoneyBook free today to take the stress out of invoices and payments.

Protect your business with HoneyBook

HoneyBook offers contracts, secure payment processing, and 1:1 support for payment disputes. See how HoneyBook can protect your business!

Start free trial

Disclaimer: The advice featured in this blog post was sourced from our HoneyBook Disputes Specialists for sharing general information and knowledge. For specific financial or legal information and advice, please consult an authorized professional.