What is Chargeback?

How a chargeback works

1. The customer asks their bank to reverse a card or online payment, for example claiming the order never arrived, was not as described, or was not made by them.
2. The bank raises a dispute through the card network to the payment gateway's bank.
3. The payment gateway tells you, and usually debits or holds the amount from your next settlement.
4. You have a fixed number of days to contest it with evidence. The gateway's dashboard shows the deadline.
5. The customer's bank decides. If you win, the money comes back. If you lose, or do not respond in time, it stays with the customer.

The time customers have to raise a dispute is set by the card network's rules and can run to several months after the payment. UPI and net-banking complaints follow their own dispute rules, but the effect on you is similar: the amount is reversed unless you show the transaction was genuine.

Evidence that wins disputes

• The tax invoice and order confirmation.
• Proof of delivery from the courier: delivery date, signature, photo or the OTP the customer gave at delivery.
• The tracking history and any messages with the customer.
• Your published return and refund policy, and proof that any refund already made was processed.

Keep all of these for every prepaid order for at least as long as a customer can dispute the payment.

Marketplaces

On a marketplace, the marketplace collects the payment, so a customer's dispute with their bank becomes a chargeback claim the marketplace passes on to you. It asks for the same kind of evidence. If you lose, the amount is recovered from your settlement, and it appears there as a separate line.

In the books

• Record the held or debited amount in a disputes receivable account until the outcome is known, rather than reversing the sale straight away.
• If you lose, reverse the sale. Issue a credit note for the GST if the time limit in section 34 of the CGST Act allows it.
• Book any dispute fee as an expense, with the GST on it as input tax credit if the gateway invoices it.
• Track chargebacks by reason. A rise in "not received" disputes often points to a courier problem, and a rise in "not authorised" disputes to fraud.

Too many chargebacks can lead a gateway to hold a reserve from your settlements or stop processing for you, so treat the chargeback rate as an operations measure, not only an accounting one.