35% of fraud-related charges are charge backs

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Wall Street Journal reports.

…customers contest a charge on their credit card, often claiming that the item was never delivered or they never bought it. Credit card companies charge merchants a fine—typically up to $100 per chargeback—which can be costly when coupled with the lost sale and the lost product…

…There are people who make a living with refunds…

…BadCustomer.com, a site that acts as an intermediary for customer disputes. Business owners enter credit card numbers of those who have done a chargeback in the past, then cashiers can search the site’s database to check if the card has had a chargeback at that store or surrounding stores, and choose to refuse the card. … Customers on the list can call BadCustomer.com to explain why they did the chargeback and have an opportunity to remove their card from the database.

Other companies sell similar solutions. Ignify Inc., in Cerritos Calif., offers shopping-cart software for online vendors with a back-end database that puts orders on hold if they have red flags, such as past chargebacks…

While the statistics suggest that 35% of fraud-related charges are charge backs, it is important for small businesses to NOT go all out with strict return policies. Most of the small business owners that I have interacted with have strict return policies, but they are also open to returns beyond the return period if you can convince them of a genuine case. Small businesses, particularly brick and mortar small businesses, often thrive on the relationships they have with the customer community. It is important to keep that in mind while deciding on strict processes.

My advice is to establish a strict return policy that you can invoke when needed, but be flexible with specific situations.

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