Prevent Chargebacks in the Collection Industry: A How-To Guide

Preventing Chargebacks in the Collection Industry: A How-To Guide

Your staff works hard during the busy tax season and throughout the year to settle past due accounts and collect payments for your agency. Without measures in place to prevent chargebacks, though, many of your payments could end up being disputed by consumers.

Agencies can go months or years without experiencing the stress caused by chargebacks. It can be as simple as following these chargeback prevention tips.

Chargeback Management

Merchant service providers have designated a chargeback as a credit or debit transaction that is disputed by the consumer. VISA requirements call for high risk merchants like debt collectors to maintain a ratio under one percent by amount and by volume. 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.
How to Calculate a Chargeback Ratio

How To Calculate Your Chargeback Ratio

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

Steps to check that your total chargeback amount is under one percent:

  1. 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.
  1. Locate the total number of card transactions you processed for the same month.
  1. 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 Chargebacks in the Collection Industry: A How-To Guide
Preventing Chargebacks in the Collection Industry: A How-To Guide
Preventing Chargebacks in the Collection Industry: A How-To Guide

How To Prevent Chargebacks

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


Your payment processor’s online payment forms should contain some basic tools that reduce your risk of chargebacks, 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 software can send an automatic receipt via email 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 before payment. In many situations, revocation language is also required.


When taking phone payments, businesses put themselves at higher risk for data breaches, PCI compliance, and chargebacks. The best option is to use software that removes those risks so agents never see or hear payment information.

Software like PDCflow’s Flow Technology can help you prevent chargebacks by sending payment information to consumers along with authorization language, so you can collect an authenticated signature on every payment, while the consumer is still on the phone.

In addition, you can send payment authorization language in a Flow and require a consumer to sign, giving you permission to charge their card for a specific dollar amount.

Flow also makes it possible for a consumer to enter their own payment information and authenticate their identity, protecting consumers from fraudulent transactions. This secure communication workflow also makes it harder for people to fraudulently dispute payments.

Bayview Solutions Testimonial Quote for Chargeback Mitigation


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 Regulation E.

In order to meet Regulation 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 Regulation 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.

Recurring Payment Authorization Form

Or, you can use a service like Flow Technology to send the payment schedule and payment authorization form in PDF format via text or email to the consumer.

The consumer 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.

Reduce Chargebacks: 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 payment receipts.

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).

Are you struggling with chargebacks within your business? To keep your merchant account healthy, you need to understand what a chargeback is, how to calculate your ratios, and what actions will help you both fight current chargebacks and prevent them in the future.

Download our Merchant Chargeback Prevention Guide for an easy-to-reference guide for how to understand your chargeback ratios and tips to prevent future issues.

For more information, download this Merchant Chargeback Prevention Guide.

Download Chargeback Prevention Guide:

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Hannah Huerta - PDCflow Marketing Specialist
Hannah Huerta, Marketing Specialist

Hannah Huerta is a Marketing Specialist at PDCflow. She creates content for the accounts receivable and payment industry.

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