Disputes and fraud are an unfortunate aspect of accepting payments online, and the best way to manage them is to prevent them from happening at all. An effective dispute and fraud prevention strategy uses a number of methods that suit your business while keeping any customer burden—and losses—to a minimum.

The following information can help create an effective dispute and fraud prevention strategy. Depending on the service you provide, the goods you sell, or how your business operates, certain methods may be more effective than others.


In this article, we'll discuss:


— Disputes —

When you accept credit card payments, there’s always a risk that your client will dispute the validity of their purchase or simply not recognize the charge. Cardholders can initiate a payment dispute or a chargeback by asking their bank to reverse the charge. 

HoneyBook will work with you and your customer's bank to resolve these disputes, but, of course, it's best to try to prevent them from happening at all!



Preventing Disputes 


Effective customer communication

Clear and frequent contact with your customers can help prevent many of the reasons for disputes. By responding to issues and processing refunds quickly, your customers are far less likely to take the time to dispute a payment.

You should also include a clear description of your refund and cancellation policies in your HoneyBook Contract or other terms of service. You can require your users to note that they understand the Contract by having them initial a section, or require them to agree to your terms of service on your website. This will not guarantee that you’ll win a dispute, but could work to your benefit during the dispute review process and increase the likelihood that card issuers respect your policies. 

Card issuers can be very specific about how policies are presented to your customers. If you have a checkbox that your customer must accept which only contains a link, this can often be rejected by the card issuer as unsatisfactory evidence that your customer had been aware of your policies. There must be reasonable evidence that your customer was presented with a full copy of your policies prior to their purchase.



Tips on communicating with customers


  • Presume good faith

Begin conversations about disputes with an open mind and listen patiently to what your clients have to say. Many problems result from miscommunication and simple human error.

  • Be constructive

Make it clear to your clients that you want to find a resolution—clients usually want the same thing as you. Showing mutual respect can lead to a more productive conversation.

  • Think long term

Not all battles are worth fighting. Give a client a break today and you may open the door to more opportunities tomorrow.

  • Preemptively communicate issues

For example, if you post a message that says, “All offices in North Carolina are currently closed due to the hurricane,” you give your buyer an opportunity to understand the situation before filing a dispute.




— Fraud —


A payment is considered fraudulent when the cardholder did not authorize it. Most fraudulent payments are made using stolen cards or card numbers. When a cardholder is notified that the payment has been made or they review their card statement, they contact their card issuer to dispute it.

Online fraud is fundamentally different from fraud that occurs at brick-and-mortar businesses as it’s harder to be certain that the person you’re selling to is who they say they are. When accepting payments online, it’s important to be aware of the different kinds of fraud and what your liability is.


Preventing Fraud

First and foremost, if, at any time, an interaction with your client feels suspicious, contact our Concierge team—one of our fraud specialists will be happy to get involved. 

To protect yourself and your business, here are some additional tips: 

  • Know your potential clients. Before exchanging or transferring funds, meet with clients in-person or, at a minimum, over the phone or video chat. 
  • If a client seems too good to be true, they may be! Be cautious.
  • Beware if someone asks you to wire funds to a bank account. 
  • Only issue refunds to original payment methods.

And again, if you suspect something fishy, please email us



Types of Fraud


Overpayments

Overpayment fraud (also known as a payout scam) is a variant of stolen card fraud. The fraudster presents themselves as requiring the services of a third-party service in connection with the purchase.

For example, a fraudster may ask a vendor to charge them for their services, then ask to be billed for add-on services that the vendor doesn’t offer. Then, they’ll have the vendor transfer/wire the overage to a random bank account—which is how the fraudster gets the funds.


Alternative refunds

In this form of fraud, the fraudster deliberately pays more than was required, then contacts the business and claims they accidentally entered the wrong amount. The fraudster requests a partial refund to rectify this, but claims they have closed the card that was used and would like a refund sent using an alternative method that is outside of the card network (e.g., check or wire transfer).

Never refund payments using a different method than the one originally used. If a card has legitimately been closed, you can still perform a refund. The customer should then contact that card issuer to arrange the funds to be retrieved. 


Friendly

Friendly fraud occurs when a legitimate cardholder makes a purchase but then disputes it at a later date. This can either be accidental, because they didn’t recognize the transaction on their statement, or deliberate (e.g., due to buyer’s remorse or as an attempt to fraudulently obtain services without paying).

It can be difficult to know whether friendly fraud has occurred, especially in online sales. For those selling physical goods, shipping to a verified billing address and requiring signature on delivery can help combat this. In addition, having clear return policies prominently displayed in your contract to which the customer must agree prior to making a purchase can also help.




General Advice


Keep an eye out for: 

  • Use of likely false information (e.g., fake phone numbers and email addresses like [email protected]).
  • Inconsistencies in customer details across multiple purchases (e.g. using the same e-mail address but a different name for another payment).
  • Communication that doesn’t sound quite right. Fraudsters often use a canned response that is sent to multiple sellers using common phrases. If any communication appears scripted, use a search engine (putting the short phrase in quotes) to see if it’s been used elsewhere (for example, this particular phrase has been used many times).
  • Unusually large orders, often rushed and last minute 

Or any requests to:

  • Split a large order into multiple payments across different cards that do not share the same verified billing address information.
  • Process a payment manually. Fraudsters may make this request in order to have the charge run with your local IP address instead of their own.
  • Charge a card more than the required amount (known as an “overcharge”) and pay out a third-party using a different payment method (e.g., cash, money order).
  • Charge a card and then provide a refund outside the card network (e.g., check, wire transfer).



Remember:

You're responsible for fraud losses. Opportunistic fraudsters take advantage of businesses that aren’t aware of fraud risks.

Nobody knows your business as well as you. You know your biggest clients and are familiar with their patterns. No payment processor will ever know these things as well as you, so your involvement in risk management is essential.

If you have noticed anything suspicious with a client that you’d like to discuss, always feel free to reach out to our Concierge team—we’d be happy to walk through the situation with you. When in doubt, just ask!  





Want to learn more?


Still have questions? Feel free to send us a message by clicking the Question Mark icon on any HoneyBook page. Our team is always happy to help!

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