Chargebacks and how to deal with them

Picture this: You run a thriving ecommerce store. Orders are coming in, customers are happy, and your products are flying off the shelves. You're on top of the world. Then, out of the blue, you receive... a chargeback request.

Chargebacks, those mysterious reversals of credit card charges, can feel like an unexpected storm in your otherwise sunny journey. Chargebacks are the equivalent of shoplifting in the digital space, you can't stop it, but you can protect yourself.

Let's look at what chargebacks are, how they happen and how you can respond.

Understanding the Chargeback

Chargeback Banner in Shopify showing total amount and deadline for submitting a dispute.

In the world of ecommerce, a chargeback occurs when a customer disputes a transaction with their credit card company or bank. Chargebacks can be initiated for various reasons, such as unauthorized transactions, damaged goods, or billing errors.

In North America, chargebacks are handled by the bank that issued the card, not by your ecommerce platform, or your credit card gateway. When this happens, the funds from that sale (along with a chargeback fee) are immediately taken out of your account and returned to the customer.

Again, this is done by the bank, and by accepting credit cards, you're accepting the terms of the gateway which includes the ability for the bank to take back that money.

What are the different Chargebacks?

There are different types of chargebacks that can be issued from a bank.

Common chargebacks include:

  1. Fraudulent Transaction: If a customer spots unfamiliar or unauthorized charges on their credit card statement, they'll likely issue a chargeback. US Merchants can use Fraud Protect to insure against these kinds of chargebacks. There's additional third party apps for this too.

  2. Product Not Received: When the purchased item doesn't arrive or gets lost in transit, customers may opt for a chargeback. This type of chargeback will not be protected with Shopify Protect or third party apps.

  3. Not as Described: If the received product significantly differs from what was advertised, frustration can lead to a chargeback.  This type of chargeback will not be protected with Shopify Protect or third party apps.

As mentioned, there are services that can help protect against the Fraudulent chargebacks. You'll need to decide as a business if a service like that would be required. Signifyd has started offering coverage for non-fraud chargebacks as well.

For many merchants, it's more cost effective to eat a few chargebacks a year than to employ a service, but this is a business-by-business kind of decision.

Responding to a Chargeback on Shopify

Chargeback Overview

So, what happens when you receive a chargeback notification on your Shopify store? Here's a step-by-step guide:

  1. Review the Notification: Take a deep breath, and carefully review the chargeback notification. Shopify will provide you with all the details you need.

  2. Gather Evidence: Collect all evidence related to the transaction. This could include tracking information, customer correspondence, and order details.

  3. Submit a Response: Within Shopify, submit your response along with the gathered evidence. Be thorough and transparent. View Shopify Chargeback Response Form to see what all you can provide.

  4. Await Resolution: The credit card company will assess the information from both sides and make a decision. This can take some time, so be patient (sometimes 90-120 days).

If you're getting chargebacks regularly, it's important to review the chargebacks in detail and see where you may be able to prevent more in the future.

For instances, if you're getting a lot of chargebacks for things like "Product not as described" perhaps you should look at updating your product photos and descriptions to be clearer and more aligned with the products.

Protecting Yourself

Chargebacks can impact your business's reputation and finances, but there are ways to help protect yourself:

  1. Awesome Customer Service: Clear communication and exceptional service can prevent many chargebacks.

  2. Accurate Product Descriptions: Ensure your product listings accurately represent what customers will receive.

  3. Transparent Policies: Have easy-to-find, transparent policies for refunds, returns, and where to contact you.

  4. Record-Keeping: Keep detailed records of all transactions, communications, and shipments.

As mentioned, you can't stop Chargebacks, all we can do is be vigilant in protecting ourselves and have an action plan for what to do when they happen.

Don't Capture Payment

An option for protection that many do not consider, is not capturing payment at checkout. You can simply authorize a transaction and then capture payment on fulfillment.

This allows you to easily cancel an order before fulfillment without worry of a chargeback (you can't do a chargeback if money hasn't been taken). You can also automate a risk process with Shopify Flow!

You can even go as far as auto-capturing payment from repeat customers that you trust already. You can setup a Customer Tag for return customers, and then use Flow to check for that tag before taking any action. 

If it's a customer with the tag, let the order go through. If there's no tag, or the order is labeled High Risk, then don't capture payment (you could even auto-cancel the order if you wanted). 

There's a number of options for automation with Shopify Flow that can help you.

What If I Lose?

That can happen, even if you're in the right! Wait... what??

That's right. The bank that issued the credit card makes the final decision and it is final. There are no dispute processes for merchants who lose the chargeback. 

Banks tend to side with their customers, particularly if they don't have a habit of issuing chargebacks. Unfortunately, this can hurt small businesses, and the process needs to be overhauled. 

Because there is no dispute process, if it's a large chargeback you may want to look at small claims court to get your money back. If you've got good evidence against them, there's a chance the court would side with you. The downside is, if the customer isn't in your area, the legal process can quickly get messy (and costly).

Hopefully you won't have to deal with chargebacks like that, but know that there are still options if you lose, they're just not great.


In the world of ecommerce, chargebacks are a reality, but they don't have to be a mystery. Understanding why they happen, how to respond, and the steps to protect your business can help you navigate these stormy waters with confidence.

Remember, chargebacks are a learning opportunity. By approaching them with professionalism and empathy, you can maintain your success and keep happy customers.

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