Disputing a charge is more common than you might think. Whether you're a cardholder or a merchant, it's important to understand what a dispute actually means.
For cardholders, it's a way to correct a mistake or report fraud. For merchants, it often turns into something much more serious: a chargeback. Chargebacks don't just reverse the sale. They come with processing fees, lost revenue, and possible penalties if your rate gets too high.
Knowing when a charge can be disputed and how to handle it matters for everyone involved. Let’s tackle the different reasons to dispute a charge and how merchants protect their businesses from penalties or fees.
The 5 Common Reasons to Dispute a Charge
Customers have many reasons to dispute a charge. Here are 5 of the most common ones:
Unauthorized or Fraudulent Transactions
If someone makes a purchase using a stolen card or account details, that’s fraud. This is the most clear-cut reason to dispute a charge. Banks and card networks have fraud detection systems, but unauthorized transactions still slip through. Cardholders can and should dispute these charges as soon as possible.
Billing Errors or Duplicate Charges
Sometimes, the issue is just a mistake. A customer may be charged twice for the same item. Or they may see a different amount than what they agreed to. These billing errors are grounds for a dispute, and usually pretty easy to resolve with proper documentation.
Goods/Services Not Received
This one comes up often in e-commerce. If a customer places an order and the item never arrives, they have the right to dispute the charge. Same goes for services that are scheduled but never delivered. Merchants need to keep proof of shipping, delivery, or completed service to respond.
Misrepresentation or Defective Items
If what the customer receives doesn’t match the product description, or if it arrives damaged or doesn’t work, that’s misrepresentation. Customers may also dispute if they were promised certain features or quality that wasn’t delivered.
Canceled Subscriptions Still Billed
Recurring billing issues can create confusion. If a customer cancels a subscription but keeps getting charged, they may file a dispute. The merchant will need to prove whether the cancellation happened before or after the last billing date.
Dispute vs Chargeback: Key Differences
A dispute starts when a cardholder flags a transaction they believe is incorrect or suspicious. This can happen for many reasons, such as fraud, billing errors, or dissatisfaction with a purchase. The customer contacts their bank or card issuer to report the issue. At this point, the funds haven’t necessarily moved yet. It’s just a claim, and sometimes, it can be resolved quickly.
The bank may escalate the case if the issue is legitimate and there’s no resolution between the customer and merchant. That’s when it becomes a chargeback. In this stage, the bank forcibly withdraws the money from the merchant’s account and returns it to the customer. The transaction is reversed, and the merchant is usually charged a fee, typically $20 to $100, regardless of whether they win or lose the case.
Disputes can often be solved before they turn into chargebacks. For example, if a customer simply didn’t recognize the charge, a quick message or refund from the merchant might stop the process. That’s why having clear receipts, responsive support, and clean billing descriptors can make a big difference.
Chargebacks, on the other hand, carry long-term consequences. Beyond the lost sale and the fees, they count against your chargeback ratio — the percentage of chargebacks compared to total transactions. If your ratio climbs above 1 percent (Visa’s and Mastercard’s typical chargeback threshold), your business may be labeled high risk.
This label isn’t just a warning. It can lead to:
- Higher processing fees from your payment provider
- Mandatory enrollment in expensive monitoring programs
- Frozen funds or withheld payouts
- Termination of your merchant account altogether
In short, disputes are warnings. Chargebacks are penalties. Merchants who understand the difference (and act quickly) are in a much stronger position to protect their revenue and avoid financial risk.
The Merchant Perspective: When to Fight a Dispute
Merchants have the right to respond. This process is called representment. To win, you need strong, clear evidence.
Here are common reasons for a merchant to challenge a dispute:
- Proof of delivery: Tracking details, signed delivery confirmations, or screenshots for digital goods.
- Customer agreement: Signed terms, cancellation policy, or refund denial that the customer acknowledged.
- Usage logs: For software or services, this shows the customer actually used the product.
Timing matters. Merchants often have 7 to 30 days to respond. The faster and clearer your reply, the better your chances of winning the case.
Gray Areas: When a Dispute Might Not Be Valid
Not every dispute is fair. Some are based ona misunderstanding. Others are cases of what’s called friendly fraud.
Friendly fraud happens when a customer makes a purchase and then disputes it anyway. Maybe they forgot they made the purchase, or they just want to avoid paying for it.
Other gray areas include:
- Subscriptions that were not properly canceled
- Claims that an item wasn’t received, even when it was
- Buyer’s remorse that’s disguised as a dispute
Merchants need to watch for patterns. If a customer has a history of disputes, extra documentation may be needed.
The Financial Impact of Chargebacks
Every chargeback costs more than just the price of the item. There are processing fees from payment providers. You also lose any shipping costs or resources spent on fulfillment.
And if chargebacks keep happening, the long-term costs grow. Banks and payment processors track your chargeback ratio. If it gets too high, you could face penalties, higher fees, or even be dropped entirely as a merchant.
Some platforms, like Visa and Mastercard, place high-risk merchants into monitoring programs. These come with extra scrutiny and higher costs.
How to Reduce Disputes as a Merchant
Prevention matters more than reaction. Here are a few ways to reduce disputes before they happen:
- Use clear and recognizable billing descriptors
- Set up automatic email confirmations for orders and shipping
- Make return, refund, and cancellation policies easy to find
- Offer support channels like live chat or fast email responses
- Track delivery and keep logs for digital access or downloads
Many disputes happen because customers feel ignored. Clear communication can stop a lot of them before they start.
The Chargeback Process: Timeline & Best Practices
The process usually starts with a customer contacting their bank. Here’s a very simplified version of a chargeback process:
- The bank notifies the merchant
- The merchant reviews the reason code and responds with evidence
- The bank or card network reviews both sides
- A decision is made, sometimes with room for arbitration
This process can take anywhere from a few weeks to a couple of months. That’s why merchants should keep organized records and respond quickly.
Tools like chargeback alerts and fraud detection software can help, especially for high-volume stores.
FAQ: Reasons to Dispute a Charge
What are the most common reasons to dispute a charge?
Fraud, billing mistakes, items not received, misrepresentation, or unwanted recurring charges are the most frequent reasons.
Can merchants dispute a chargeback?
Yes. Merchants can fight back by providing proof that the transaction was valid. This is called representment and is part of the formal chargeback process.
What’s the difference between a charge dispute and a chargeback?
A dispute is the first step, often informal. If it escalates and the bank forcibly pulls the money back from the merchant, it becomes a chargeback.
How do I know if a dispute is valid?
If the charge involves fraud, an error, or a real failure in delivery, it’s valid. If the item was received and used, it might be friendly fraud instead.
How can merchants reduce chargebacks?
Clear billing, fast communication, and solid documentation are key. Use tools like alerts and keep track of shipping and usage data.
Is it worth challenging a chargeback?
If you have clear evidence, yes. Winning a chargeback keeps your revenue and protects your chargeback ratio.
Do too many disputes hurt my business?
Yes. High chargeback rates lead to fees, penalties, and possibly being dropped by your processor. Stay below the 1% mark if you can.
Final Thoughts: Understanding Is Protection
Disputes aren’t going away. But they don’t always have to turn into chargebacks. The more you understand the process (and the reasons behind it), the better you can protect your business and your customers.
Whether you're a merchant responding to a claim or a shopper asking questions, a little clarity goes a long way.
Want to stop playing defense and actually get ahead of disputes? Request a demo or dive in and see how Chargeblast can help you take control before the next chargeback hits your inbox.
Let’s make chargebacks boring again.
