What is a chargeback fee cost?
Chargebacks invariably lead to losses for the company. However, it is incorrect to think that the amount of these losses is limited solely to the cost of goods. The company incurs quite a few other expenses. Before a company can sell a product, it must store it somewhere. The process of packaging the goods, while not expensive, is also an expense for the company. Moreover, of course, we should not forget about the shipping costs, which the company bears in many cases.
Don’t we forget anything? Of course, we must also remember about costs such as the chargeback fee. What is a chargeback fee, how do the company’s obligations arise from it? These and other questions we will consider in this article.
What is a chargeback fee?
When we talk about chargeback disputes, of course, it is not just the merchant and the buyer that are involved. It is also worth remembering the other parties involved, namely the banks. To process chargebacks and resolve some contention points, these banks spend their time and other resources. To compensate for losses, they impose a commission, which merchants have to pay.
How much commission will the company pay?
The amount of commission that banks charge can range from $20 to $100. But the reality is that companies spend 3 or 4 times that much. To attract customers, they also need to invest their money, and they incur operational and other costs.
On the one hand, paying 3.5% of the transaction value for payment processing is not a problem, but not if we are talking about purchases of large sums. If a chargeback is requested on such transactions, the company’s commission may be pretty significant.
Control of inventory management, warehousing costs, costs associated with packaging and shipping of goods. All of these also amounts to about 15 to 20% of the purchase amount. In the case of a chargeback, no one will cover these costs for the company. Do you think that’s the end of the chargeback loss? Well, it doesn’t.
Don’t forget that many companies spend a great deal of money on advertising. Later, these costs are recouped from the profits received, but these profits are substantially reduced if there are too many chargebacks. The company has to find sources to cover these costs. And your bank may charge you a fine of up to 35% or even 40% of the transaction amount.
The bottom line is disappointing because if you sell a $50 product for which a chargeback has been requested, not only will you lose that profit, but you will also incur costs that are two or three times the amount of the purchase.
It’s important to understand that many of the costs associated with the chargeback are passed on to the company by the bank. These are costs related to payment security, processing, and so on.
The main threat from chargebacks
You already know what a PayPal chargeback fee is. You are well aware of how unpleasant it is for your company and that the actual costs associated with chargebacks can be three or more times higher than the commission.
Unfortunately, this is far from the most significant problem you will encounter. A large number of demands for refunds from clients will cause your firm to lose its reputation. All this can harm future orders, and those customers who previously thought about buying goods from you may change their decision, not in your favor.
What should a company do in such a situation? Make customer service as fast, high quality, and pleasant as possible, thanks to which the number of chargebacks should decrease.
If your company needs to deal with chargebacks, it is essential to partner with a trustworthy payment processing company. We at PayOp value our customer’s payment security. Thus, we offer a wide range of payment solutons as well as high security measures.