4 Chargeback Prevention Tips for Subscription and Recurring Payments

Subscription and recurring payment models have gained popularity in the last few years. For customers, subscriptions allow them to pay for products or services in small increments, rather than have a hefty upfront cost. For business owners, it allows them to anticipate future sales as well as how much product or labor will be required. This business model can easily be a win-win for both parties. However, if not properly managed, recurring payments and subscriptions can come with an increased risk of chargebacks.

Typically, there are two main reasons that chargebacks occur with these business models:

1. The customer simply forgets that they signed up for your service
2. The customer decided that they didn’t want the service anymore. However, instead of contacting the company for a refund, they called their bank and filed a dispute.

Chargebacks can potentially ruin a business if not managed properly and left unattended. Here are some tips to help reduce and prevent chargebacks in recurring transactions:

1. Transparency

Be completely transparent with your customers so that they are aware of the recurring transaction. The simplest of tips is also the most significant. Make sure your customers are aware that they will be enrolled into your subscription model. Sometimes it even helps to have your customers acknowledge the pricing structure through a checkbox at checkout. This can minimize disputes and help you fight a case if a chargeback does occur.

2. Billing Reminders

A great way to deter disputes is to send billing reminders to your customers. The best time to send billing reminders is a few days prior to the charge occurring. This can help your customers acknowledge the charge and give them an option to contact you with a request to cancel instead of going through their bank. Billing reminders are simply to bring awareness of the charge and push your customer to go through the better option of contacting you, instead of their issuing bank.

3. Opt-In Email

If you want to be even more proactive with your subscription agreements, you can even send an initial opt-in email. This gives your customers the option to decide if they want to be on recurring payments or instead pay per order. It’s recommended that in this email you should make sure your customer has all your contact details. Sometimes it’s even beneficial to have a note that says the following: “Sign up for your subscription to keep receiving your favorite products monthly! Don’t worry, if at any time you decide you want to ease up on your orders, just email us at: sample@sample.com. We’d be happy to change your subscription to a purchase model that works best for you.” This type of note lets your customers know that if they don’t want to continue with your subscription, they should contact you first before filing a dispute which will result in a chargeback.

4. Descriptor Update

Sometimes chargeback prevention can be as easy as contacting your payment provider and updating your descriptor. A descriptor is what identifies the entity who charged the customer. A customer can find all transaction descriptors on their bank statement. For example, Rover uses the descriptor Rover.com so that way their customers can recognize who the transaction is stemming from. When determining the best descriptor for your business, you should try to use one that identifies what your customers are buying. You can use your business name as your descriptor as long as it identifies what your customers are buying. For example, if your business name is “Fire Power” and you sell supplements, you may not want to list only “Fire Power” as your descriptor. It may be hard for your customers to understand what you sell just by your name. But if your business name is “Donald’s Burgers” and you use that as your descriptor, chances are customers will understand that the burger they bought was from you. The key to a good descriptor is making sure that your customers can identify what they purchased and who they purchased it from.

In conclusion

The key to keeping chargebacks at bay is to focus on prevention. Keeping customers informed can help you minimize the amount of chargebacks your business receives. Customers enjoy subscriptions as long as they have the power to opt-out whenever they so choose. Make sure you give your customers the option to enroll and to disenroll. Doing this can help fight chargebacks and lead to happier customers.

If you need help fighting chargebacks, contact us at info@reddepayments.com. We can work with you to find a proper strategy that works best for your customers and business type.