Chargebacks & disputes explained

What a chargeback is, how the dispute process generally works, what you can do to respond, and how to reduce the chances of chargebacks occurring.

A chargeback can feel alarming — money disappears from your account and you get a formal notification demanding a response. This guide explains what chargebacks are, how the process generally works, and what steps you can take. Note that dispute procedures vary between processors and card networks, so always refer to your specific processor's guidance for the exact steps in your case.

Quick summary

A chargeback happens when a customer asks their bank to reverse a charge. The bank temporarily returns the money to the customer while investigating. You have an opportunity to provide evidence and dispute the claim. Chargebacks usually come with a fee you do not get back, even if you win. Prevention is the best strategy — clear communication, good records, and solid customer service go a long way.

This guide describes the process generally

Chargeback procedures vary between card networks (Visa, Mastercard), processors (Stripe, PayPal), and individual situations. The information here is a general overview. Always follow the specific instructions provided by your payment processor when responding to a real dispute.

What is a chargeback?

A chargeback (also called a dispute) is when a customer contacts their card-issuing bank and asks to have a charge reversed. The bank temporarily returns the funds to the customer and notifies your payment processor.

This is different from a refund, which you initiate yourself. With a chargeback, the customer bypasses you and goes directly to their bank.

Why chargebacks happen

Common reasons include:

Fraud — someone used the customer's card without their permission
Non-delivery — the customer claims they did not receive the goods or service
Item not as described — the customer says what arrived was significantly different from what was advertised
Duplicate charge — the customer was billed more than once for the same purchase
Subscription confusion — the customer does not recognize a recurring charge or forgot to cancel

Some chargebacks are genuine mistakes or fraud. Others are "friendly fraud," where a customer disputes a legitimate charge to get their money back without going through your normal returns process.

The general chargeback process

The exact steps and timelines vary by processor and card network, but the typical flow looks like this:

Customer files a dispute. The customer contacts their bank and disputes the charge. The bank initiates a chargeback.

Processor notifies you. Your payment processor (Stripe, PayPal, etc.) notifies you of the dispute, usually by email and in your dashboard. The disputed funds are typically held or withdrawn from your balance at this point.

You review the dispute. Log in to your processor's dashboard. Read the reason code — this tells you why the customer filed the dispute.

You decide whether to accept or respond. If the chargeback is valid (genuine mistake, lost shipment, etc.), you can accept it. If you believe the charge was legitimate, you can submit evidence to dispute it.

You submit evidence (if disputing). Gather documentation: receipts, order confirmation emails, delivery tracking, screenshots of your terms and conditions, and any communication with the customer. Each processor has its own submission process and deadline.

The customer's bank reviews the evidence and decides. This is slow. Stripe says a dispute you have countered can take up to three months to come back.

A decision is made. If you win, the disputed funds are returned to you. If the customer wins, the funds stay with them. The dispute fee is generally charged regardless of the outcome.

Chargeback fees

Most processors charge a fee when a chargeback is filed, separate from the original transaction fee and taken from your balance when the dispute is opened. With Stripe, the fee for receiving a dispute is not returned whichever way the dispute goes; responding to it manually adds a second fee, and Stripe returns that one only if you win. Check your own processor's fee schedule for the amounts.

How to reduce chargebacks

Prevention is far more effective than winning disputes after the fact.

Respond to customer complaints quickly. Many chargebacks happen because a customer could not reach the business. A prompt, helpful response to a complaint often resolves the issue before it escalates.

Use a clear statement descriptor. Make sure your business name appears recognizably on card statements — Stripe calls this your statement descriptor, and you set it in your Stripe Dashboard. A confusing or unfamiliar name is a common trigger for "I don't recognize this charge" disputes.

Ship with tracking. For physical goods, always use a shipping method that provides tracking. A tracking number showing delivery is strong evidence in a dispute.

Have a clear return and refund policy. Display it prominently. A frustrated customer who cannot find your returns policy may skip your process and go straight to their bank.

Send order confirmations. Automated confirmation emails create a paper trail and reassure customers the order was received.

Use fraud prevention tools. Stripe Radar and similar tools flag suspicious transactions before they are processed, reducing fraud-related chargebacks.

Common questions

What happens to my account if I get too many chargebacks?

Card networks watch your dispute rate and place accounts with high rates into a monitoring program. Each network sets its own thresholds, and they are lower than most people assume. Visa's Acquirer Monitoring Program flags an account at a 0.5% dispute-and-fraud ratio and treats 1.5% as excessive (2.2% in its CEMEA region). Mastercard's Excessive Chargeback Merchant level starts at a 1.5% chargeback rate together with at least 100 chargebacks in a month.

Once you are in a program you can face monthly fines and extra fees until your rate comes down and stays down. Stripe warns that failing to fix the situation can end with the network refusing to process any further payments for you, which would put card payments out of reach altogether. Keeping disputes low genuinely matters.

Can I contact the customer before responding to a chargeback?

In some cases, reaching out to resolve the issue directly — issuing a refund, for example — can lead the customer to withdraw the dispute. However, once a formal dispute is open, the timeline is controlled by the processor and card network. Check your processor's guidance before contacting the customer, because the rules on this vary.

Is a PayPal dispute the same as a chargeback?

PayPal has its own internal dispute and claim process through the Resolution Center, which is separate from a credit card chargeback. However, if a customer paid by card through PayPal, they may also file a chargeback with their card issuer. Both processes can apply in that scenario.

What evidence is most useful to submit?

The most helpful evidence depends on the dispute reason. For "item not received": delivery confirmation with tracking. For "item not as described": photos of the item, your product listing, and your return policy. For "unrecognized charge": signed receipts, IP address logs, or any correspondence with the customer showing they made the purchase.

Need a hand?

If you're stuck, email support@chykalophia.com and we'll help. Include your website address and a screenshot if you can.