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How Chargebacks Rob Your Charity Of Valuable Donations

As a nonprofit entity, donations are vitally important to your operation. For this reason, it is equally important to be wary of chargebacks.

Not only can chargebacks cost you donations – unchecked, mounting chargebacks could quite quickly compromise your entire organization.

What is a Chargeback?

Originally designed as a form of consumer protection against fraudulent purchases, chargebacks are now a standard part of the credit industry.  If a cardholder files a chargeback, the merchant is forced to return funds from the original transaction.

Cardholders usually file a chargeback if…

  • The original transaction was made fraudulently (without their permission)
  • The goods/services were never deliverer
  • The goods/services were poor quality
  • The cardholder experiences “buyer’s remorse”

What Chargebacks Mean for your Charity

Any organization or business that accepts credit card payments is subject to chargebacks.  Even as a charity organization, you are considered (in the bank’s eyes) a “merchant.”  That means you get treated just like everyone else.

If a donor decided to file a chargeback, you lose out on those much-needed donations.  Additionally, you’ll be charged a chargeback fee (usually $20 per transaction).

Imagine a monthly donor decides to file a chargeback for each of his past six month’s contributions.  Not only do you lose that money – which you have probably already spent – you’ll also be charged a $120 fine!

To make things even worse, accruing too many chargebacks in a month (typically judged at any more than one or two percent of your overall transactions) could result in much steeper fines and penalties.

Ultimately you may even be dropped by your credit card processor, meaning you would be unable to process credit card transactions. This would make collecting donations nearly impossible!

What Can I Do to Prevent Chargebacks?

We all know non-profit organizations always have more stress, drama, and responsibilities than they can handle!  However, you really do need to add “reduce chargebacks” to your to-do list.  This article has some general tips to reduce chargebacks.  We’ve also amassed a list of tips specific to charity organizations.

  • Find out how your group’s name appears on your donor’s credit card and bank statements. If people look at their statements and do not quickly recognize the names listed, they may jump to conclusions, assume they have been the victim of a fraudulent charge and demand the money be returned. Use a trading name that is easily recognizable.
  • Ask your credit processor to include the organization’s phone number on the statement. If the donor is confused about the entry on his or her statement or simply forgot about making a donation, they might call you instead of immediately demanding their money back.
  • If you make a portion of your revenue from selling some kind of product, be sure to provide great customer service. This may seem obvious, but effective communication in particular – plainly stated shipping and return policies, prompt and attentive email response to questions – can save a lot of headaches down the road.
  • When a chargeback is initiated, consider reaching out and contacting the donor personally. If the issue which motivated the chargeback can be resolved, the donor might cancel the process with the credit company.
  • Be mindful of online or over-the-phone transactions. Chargebacks only apply to card-not-present transactions such as these, so while you don’t have to worry about this issue with donations collected in person, a donation made remotely can be challenged later.
  • In order to help guard against fraud, Visa recommends asking for the expiration date as well as the three-digit Card Verification Value of all credit cards. Additionally, especially when donations are accepted in exchange for a product, be mindful of suspicious activity such as multiple donors from the same address, the same donor placing orders from multiple addresses, a quick succession of transactions from the same card, etc.

Responsibility for protecting your nonprofit group against chargebacks will ultimately fall to you, so be proactive!

Guest Author
Emily Juhl has worked and volunteered for a variety of non-profit organizations over the past 10 years.  She has witnessed firsthand how devastating chargebacks can be.

Tim Esterdahl

Tim Esterdahl is the editor of IFCS blog. He is a married father of three and enjoys golf in his spare time.

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