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How Advanced Deposits And Extended Delivery Timeframes Affect Your Risk for Chargebacks
Advanced deposits and extended delivery timeframes can significantly affect your risk for chargebacks. A chargeback occurs when a customer contacts their bank and requests the credit card charges to be reversed.
The construction industry provides a good example of advanced deposits and extended delivery timeframes. The general rule of thumb is that the longer it takes to complete a job, the higher the chances that a customer will change their mind, dispute the charge, and request a chargeback. Assume you remodel kitchen counters and a typical job takes 2-3 days. In this scenario there is a small chance that your customer would change their mind and request a chargeback for the initial deposit within the 2-3 days that pass between the initial deposit and job completion. However, assume you do extensive remodels that take several months. In this scenario there is a considerably higher risk that the customer will change their mind and request a chargeback.
Recently I setup a fishing boat charter with payment policies designed to minimize chargebacks. The merchant books fishing trips up to 4 months in advance. And although the credit card information is collected at the time of the reservation, there are no upfront deposits charged until 48 hours prior to departure. Charging the card up to 4 months in advance leaves a wide window for the customer to change their mind and request a chargeback. By waiting until 48 hours prior to departure this merchant has ensured that only those who are committed to the trip will have their credit card charged. This merchant is at a very low risk for chargebacks.
Some protective measures you can take up front to avoid chargebacks are making sure your customers clearly understand you refund policy as well as getting all agreements in writing.