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Chargeback and refund
A refund and a chargeback both return money to the buyer. The difference is who starts it and who decides.
| Refund | Chargeback | |
|---|---|---|
| Who starts it | You, often after the buyer asks | The buyer, by disputing the charge with their bank |
| Who decides | You | The buyer's bank (the issuer), under the card network's rules |
| Extra fee | None from the dispute process | A dispute fee from your provider, charged whether you win or lose in some agreements |
| Counts toward your chargeback rate | No | Yes |
| Your effort | One action on the order | Collecting and sending evidence before a deadline |
A buyer who cannot reach you, or who does not recognize the charge, may go to their bank instead of asking you. Each of those disputes would have been a refund, or no dispute at all, if the buyer had known who you were and how to reach you.
This page explains how disputes work in general. The rules come from the card networks and from your agreement with your payment provider, and they differ by network, card type and region. It is not legal advice; for a large or repeated dispute, read your provider's dispute guide or ask a professional.
The steps of a chargeback
| Step | What happens | General timing |
|---|---|---|
| 1. The buyer disputes with their bank | The buyer tells the bank that issued the card that a charge is wrong. The bank assigns a reason, such as fraud or item not received. | Weeks or months after the payment, within a window the network rules set for each reason |
| 2. Funds pulled back, plus a dispute fee | The bank takes the amount back through the card network. Your provider debits it, and its dispute fee, from your balance and tells you. | Within days of the dispute |
| 3. Evidence window | You accept the dispute or answer it with evidence through your provider. If you send nothing before the deadline, you lose. | A deadline your provider sets, often days to a few weeks |
| 4. The issuer decides | The buyer's bank reviews your evidence. If it rules for you, the amount comes back to your balance; if not, it stays with the buyer. | Weeks to a few months after you respond |
Some disputes have more rounds. The buyer can contest a decision in your favor, and a case can go to the card network for a final ruling, which can carry a further fee. Some banks also send an inquiry before a chargeback, asking for details of the purchase; answering it quickly can stop a dispute from going further.
Common reasons for a chargeback
The bank files every chargeback under a reason. The names and codes differ by card network, but they fall into a few groups:
- Fraud or unrecognized. The cardholder says they did not make or allow the purchase, or does not recognize the charge on the statement.
- Item not received. The buyer paid and says the order never arrived.
- Not as described. The item arrived but was damaged, faulty or different from the listing.
- Canceled or duplicate. The buyer canceled the order or a subscription and was charged anyway, was promised a refund that never came, or was charged twice for one order.
The reason decides what evidence counts. Proof of delivery answers "item not received"; it does not answer "not as described."
Friendly fraud
Friendly fraud is the name used for a dispute filed as fraud or as not received when the cardholder made the purchase, or someone they allowed to use the card did, and the order arrived. Some of these disputes are deliberate. Others come from a family member who bought with the card, a charge the buyer did not recognize, or a subscription the buyer forgot. You cannot tell which from the dispute alone, and the response is the same either way: show that the cardholder placed the order and that it was delivered.
What one lost chargeback costs
Take a $40 order. The goods cost you $24 (a 40% gross margin), the shipping label cost $6, and the figures below use a payment fee of, say, 3% plus $0.30 and a dispute fee of, say, $15. These are examples, not any provider's price.
| Line | Amount |
|---|---|
| Payment from the buyer | +$40.00 |
| Original payment fee (3% × $40 + $0.30), not returned | −$1.50 |
| Chargeback: the payment taken back | −$40.00 |
| Dispute fee | −$15.00 |
| Cost of the goods you shipped | −$24.00 |
| Shipping label you paid | −$6.00 |
| Result of the order | −$46.50 |
Had the sale stood, it would have left $40 − $24 − $6 − $1.50 = $8.50. The chargeback turns $8.50 of profit into a $46.50 loss, a swing of $55. Earning back $46.50 at $8.50 an order takes $46.50 ÷ $8.50 = 5.5 orders, so six more good orders.
Compare a refund for the same order. If you refund before you ship, you lose no more than the $1.50 fee. If you refund after delivery and the item does not come back, you lose $24 + $6 + $1.50 = $31.50: still $15 less than the chargeback, because there is no dispute fee, and nothing is added to your chargeback rate.
Check your provider's terms for two details: whether it returns the dispute fee when you win, and whether it keeps the original payment fee on a refund or a chargeback.
Chargeback rate and card network monitoring
Chargeback rate = chargebacks ÷ card payments, in the same period
A store with 6 chargebacks and 1,200 card payments in a month has a rate of 6 ÷ 1,200 = 0.5%.
Definitions differ, so read the one that applies to you. Some count chargebacks by number, some by value. Some divide this month's chargebacks by this month's payments; others match each chargeback to the month of the sale, which gives a different figure when sales rise or fall. A dispute you later win can still count, because it is counted when it is filed.
Card networks run monitoring programs for merchants whose dispute or fraud levels pass thresholds the networks set. The thresholds, the counting rules and the fees differ by network and change over time, so we do not quote them here; ask your provider which programs apply to your account. A store in a program can face monthly fees and a required plan to bring the rate down, and a provider can hold a reserve from your payouts or close the account. Because the rate is a ratio, a small store feels each dispute more: one chargeback is 1% of 100 payments and 0.1% of 1,000.
Evidence that helps, by reason
Send evidence that answers the reason the bank gave, and keep it short and clear. A reviewer reads it quickly, so put the strongest proof first.
| Reason | Evidence that helps |
|---|---|
| Fraud or unrecognized | Billing and shipping address that match the card, the buyer's earlier undisputed orders, the buyer's messages about the order, tracking showing delivery to the buyer's address |
| Item not received | Tracking that shows delivered, with date and address; a signature for a signed delivery; messages in which the buyer mentions having the item |
| Not as described | The listing as the buyer saw it, photos taken before shipping, your messages with the buyer, the refund policy shown at checkout and whether the buyer used it |
| Canceled or duplicate | The refund policy or subscription terms shown at checkout, the cancellation date against the charge date, proof that a refund was made, proof that two charges were two orders |
Tracking without delivery confirmation shows only that a parcel was sent. A delivery scan to the right address is stronger, and a signature is stronger again. Keep messages with buyers attached to the order, so you can find them before the deadline.
How to prevent chargebacks
Each habit below costs something. Weigh it against the $46.50 a lost chargeback cost in the example above:
- A clear billing descriptor. The descriptor is the name on the buyer's card statement. Make it match your store's name, and add a website or phone number if your provider allows. Cost: a settings change at your provider, within a short character limit.
- Fast refunds when asked. Answer refund requests quickly and say when the money will arrive. A buyer who gets a reply has less reason to call the bank. Cost: the refund itself, which in the example loses $31.50 instead of $46.50, plus the time to answer messages.
- Delivery confirmation. Use tracked shipping and, for higher-value orders, a signature. Cost: a signed delivery adds, say, $3 a parcel; on 100 orders that is $300, as much as 300 ÷ 46.50 = 6.5 lost chargebacks, so keep it for orders above a value you choose. A signature also means a buyer who is out has to collect the parcel.
- Fraud screening. Check orders for signs such as a billing and shipping address far apart, many cards tried, or a rushed high-value order, and hold them for review. Asking the buyer's bank to confirm the payment in a banking app can, under network rules, move the cost of a fraud chargeback from you to the bank. Cost: a screening service may charge, say, $0.10 an order, which is $100 a month on 1,000 orders; and good orders turned away are lost sales. Declining 10 good $40 orders loses 10 × $8.50 = $85 of profit and lowers your conversion rate.
Show your refund and cancellation policy at checkout, and make your contact details easy to find. They help twice: buyers ask you before their bank, and the policy is evidence if a dispute comes anyway. Shipping on time and sending tracking with each fulfillment removes the cause of many "not received" disputes before they start.
In Tanqory, you refund the whole order or part of it from the order page, and the refund goes back to the payment the buyer used.
Questions
Can I refund an order after a chargeback is opened?
Usually not. Once the chargeback is filed, the bank has already taken the money back, so a refund on top can return the same amount twice. Accept or answer the dispute through your provider instead, and check its guidance before you send any refund.
Do I get the dispute fee back if I win?
It depends on your provider's terms. Some return the fee when the decision goes your way, and some keep it whatever the outcome. Check the dispute section of your agreement before you decide whether a small dispute is worth answering.
Should I answer every chargeback?
Answer when your evidence matches the reason the bank gave, such as proof of delivery for "item not received." If the buyer is right, or you have no evidence for that reason, accepting saves your time and gives the same result. Either way, the dispute still counts toward your chargeback rate.
Can a buyer file a chargeback after I refunded them?
Yes. A buyer may file before the refund appears on the statement, or not connect the refund to the charge. Answer with proof of the refund: the date, the amount and the reference your provider gives. The bank then has no money to return.
What is a good chargeback rate?
There is no single good number we can give. The card networks set the thresholds for their monitoring programs, the levels differ by network and change, and your provider may set its own limit. Ask your provider which limits apply to your account, and track your own rate each month, counted the same way each time.