Managing and Preventing Chargebacks
Accepting debit and credit card payments is a powerful way to increase cash flow and offer convenience to your clients. However, it is essential to protect your firm from financial loss due to chargebacks.
A chargeback occurs when a cardholder disputes a transaction with their issuing bank. To help you defend your revenue, follow these proactive strategies and documentation standards.
Proactive Prevention Strategies
The best way to resolve a dispute is to prevent it from happening in the first place through clear communication and strict documentation.
Secure Authorization: Always obtain a signature (paper or electronic) from the cardholder for the specific dollar amount being charged.
Verify the Cardholder: Confirm the name on the card. If the payer is not your client (e.g., a relative in a family law case), obtain a Third-Party Authorization Form.
Phone & Web Protocol: For remote payments, ensure you have a signed charge authorization or a client agreement on file that permits recurring or one-time charges.
Initial Key Clauses: Have clients specifically initial the payment and credit card policies within your fee agreement. This proves they were notified of your terms.
Clear Refund Policies: While you cannot waive a client's right to dispute, you can disclose fees as non-refundable. Ensure clients initial directly next to your refund and cancellation policies.
Detailed Documentation: Always include the client name, invoice number, and matter number on all authorization forms.
Pro-Tip: Communicate frequently with your clients. Open transparency regarding billing reduces frustration and significantly lowers the risk of a formal dispute.
How to Defend a Dispute
If a chargeback is initiated, the card-issuing bank typically investigates two primary factors:
Permission: Did you have the merchant's authorization to charge the card?
Service: Was the service actually provided to the client?
By following the prevention steps above, you will have the signed authorizations and proof of service needed to successfully challenge a dispute and retain your hard-earned income.