Your staff works hard during the busy tax season to settle past due accounts and collect payments for your agency. After all that work, nothing is more frustrating than receiving a chargeback notice from your merchant service provider, notifying you that a consumer has disputed a payment to their issuing bank. This scenario is familiar to many of you, but it doesn’t have to be. Many agencies can go months or years without experiencing the stress caused by chargebacks. It can be as simple as following these chargeback prevention tips.

What is a chargeback and how can you calculate your chargeback ratio?

Credit or debit transactions that are disputed by the consumer have been designated by merchant service providers as chargebacks. For high risk merchants such as debt collection agencies, it is imperative that your chargeback ratio stays under one percent by amount and by volume since it is a VISA requirement. If not, you could lose the ability to accept credit and debit cards, and may be blacklisted from getting another merchant account in the future.

To determine whether you are keeping your chargeback ratio below one percent, you should review your merchant statement each month.

To check that your total chargeback amount is under one percent, you will need to find the number of chargebacks incurred, which is usually found on a separate line item on your statement, along with the fee your MSP charges for each incident. Next, locate the total number of card transactions you processed for the same month. Divide the number of chargebacks by the total number of transactions, and you will have calculated your chargeback ratio.

In the example statement below, the merchant processed 173 transactions, and had one chargeback. Their chargeback ratio for the amount of chargebacks is .005 for this month.

To calculate the volume-based chargeback ratio, you will need to divide the total combined amount of chargebacks by your total volume for that month.

In the example statement below, the merchant processed a total monthly volume of $27,256.01 and had a total dollar amount of $199.11 in chargebacks. So the chargeback ratio is .007 for this month.

Preventing Future Chargebacks

In the accounts receivable industry, chargebacks can be avoided by training your agents and implementing some basic tools.


Your payment processor should provide some basic tools within your online payment form that you can choose to implement that can greatly reduce your chances of a chargeback, such as:

  • Requiring address information on the payment form in order to use Address Verification Service (AVS).
  • Requiring the consumer to enter the 3 digit code on the back of the card in order to use Card Verification (CVV2/CVC2).
  • Be sure your payment processor allows an automatic receipt via email to be sent, if the consumer provides their email address. In addition, include your cancellation policy and a customer service number on your receipt.
  • Your payment processor should allow you to add custom text to your online payment site which clearly states your cancellation or refund policy on your website payment page and on the receipt. Some processors can require the consumer to check a box that they have read and understand the refund/cancellation policy. In many situations, revocation language is required by regulation.

Train your collectors/agents to get proper voice authorization by following an authorization script. Keep in mind that if you are utilizing call recording, the recording needs to be paused when the credit card data, number and expiration date, are being given or repeated over the phone, in order to stay within PCI Compliance regulations. Example script is as follows:


  • Have your agent ask for billing address information and enter into the payment screen in order to meet Address Verification Service (AVS)
  • Have your agent ask for the Security Code on the back of the card and enter into the payment screen to meet Card Verification.
  • Have your agent request an email address in order to send a receipt of the payment or mail a receipt of the payment if an email address is not available. Be sure that your payment receipt clearly states a cancellation/refund policy and gives your Customer Service phone # and business hours along with any revocation language required.
  • Have your agent clearly state what the billing descriptor will look like on their bank statement to avoid confusion once they receive their statement.

You could also use an eSignature Payment Authorization Service that can send the payment information to the consumer with clearly stated payment authorization language either via text or email to get their authenticated signature on the payment. When a person physically signs for a payment, they are less likely to attempt to dispute the payment.


Recurring payments or payment plans set up with debit cards also fall under regulation-e requirements. Following these chargeback prevention tips will not only help you to reduce the occurrence of chargebacks, but will also keep you compliant with Reg E.

In order to meet Reg E requirements for a payment plan set up with a debit card, your agent will need to get an actual or “wet” signature on the payment authorization. An adopted signature, unfortunately, does not meet the Reg E requirements. Instead you may take the payment information from the consumer and fill it into a payment authorization form, as in the example below. In this scenario, you would have to mail the payment authorization form to the consumer and then wait for the consumer to either mail or fax it back.

Regulation E requires that this signed authorization be on file prior to the first post-dated payment being charged. This authorization must then be kept on file for two years following the conclusion of the payment plan.

Or you can use an eSignature Payment Authorization Service that can send the payment schedule and payment authorization form in pdf format via text or email to the consumer. This way they can review the payment schedule, sign the authorization and have it back to you in minutes. The sensitive card data is also encrypted with this type of tool in order to keep your agency within PCI Compliance regulations.

Encourage your Consumers to Contact You First

Make it clear to your consumers that if they have any questions about their payments, they should contact you first. Have your agents provide your customer service phone number while speaking on the phone, and be sure it is easy to find on your website and on any payment receipt.

If your consumer calls with questions, be sure to have someone available to answer them or call the consumer back as soon as possible. It is always better to issue a refund if needed than to have the consumer go to their bank and dispute the transaction. Even if you win a dispute, a chargeback will still count in your chargeback ratio and you will be charged the fee listed in your merchant service provider contract (usually $25 or more).

PDCflow offers a free eSignature Payment Authorization Service that provides a wet signature from your consumers on any one-time or recurring payment schedule. For more information please see our Payment Authorizations page or call us at 1-877-732-4814.

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