Plan for fraud (but try to prevent it)

With the growth in ecommerce, it’s no surprise that online fraud is growing, too. By some reports, as much as 7.5 percent of all online transactions are fraudulent in one way or another — whether it is chargebacks, non-deliveries, or returns. They all cut into merchants’ profits, especially in January and February, when they hit the hardest.

Merchants should plan for fraud and build it into cost calculations and into the necessary margins to cover. Merchants should also strive to prevent it.

Chargebacks

Chargebacks are particularly annoying. Not only do you stand to lose the product and the money, but you also pay the payment processing.

Banks have clear rules for contesting chargebacks. Follow them. There is no second chance. Give banks everything — the original order, all communication you had with the buyer, postage details, delivery details, and anything else that matters.

You may get lucky and win.

Banks have clear rules for contesting chargebacks. Follow them.

Nonetheless, after each chargeback look at the facts and consider what you could have done better. For example, did you charge a different amount to what was displayed on the site? Did the customer miss the sales tax or postage add on? Does your name appear differently on the credit card statement (this is a common flaw)?

Add explanatory text to your checkout to address potential confusion and thereby reduce the number of chargebacks. A few well-chosen words could make a difference.

Non-deliveries

In my experience, it’s often difficult to distinguish between actual non-deliveries and fraudulent ones. That’s especially during the holidays when there are so many shipments.

No matter what you suspect, there is little you can do other than refund the customer. Otherwise you could receive a chargeback or a claim on Amazon or PayPal that you cannot defend.

Regardless, whenever customers claim non-delivery, I always ask them to check with neighbors or other nearby residents. I also ask them to send a formal, written message confirming that they have checked and that it has not arrived. I then explain that I need this formal notice so that the courier can investigate in case of theft by the driver. This sometimes works, and parcels are “found.”

After several non-deliveries, it is worth looking at your courier. Some are better than others. Sometimes the cheapest carrier can cost more than an expensive one. To cut costs, the cheapest carriers will sometimes impose unrealistic demands on their drivers, causing them to either not bother delivering or just leaving items on doorsteps without checking to see if the customer is in. Such practices create non-deliveries, and the merchant pays.

After a number of non-deliveries, it is worth looking at your courier. Some are better than others.

Returns

Genuine returns, where the customer has returned undamaged the same product you sent, can be resold as returns. Your loss is postage and some margin.

The real problems occur when the customer has used and abused the product, has sent back a different one, or has sent back an empty box. Unfortunately, most banks, as well as PayPal and Amazon, assume the customer has in good faith returned the product. I have never heard of a retailer successfully defending against issuing a refund.

Analyze why returns are occurring. Can you address the cause? Sometimes a more accurate product description, with dimensions and additional pictures, can improve customers’ understanding of what they are getting and thus reduce returns.

Informing customers that you keep a register of all serial numbers in case of product recalls can discourage fraudsters who intend to send back a broken product not ordered from you. I also maintain a database of customers who have sent products back. I decline subsequent orders from repeat offenders.

The Important Thing

There is no ironclad way of eliminating fraudulent returns, non-deliveries, and chargebacks. They are a cost of doing business. But careful management can reduce the number.

The most important thing is always to give customers their money back. This may encourage honest customers to purchase again. Fraudsters, however, know the system and will usually prevail. Don’t take it personally. It’s business.