Software Growth

Chargeback

A chargeback is when a customer's bank reverses a card payment after the customer disputes it. You lose the money and pay a fee, even if you later win.

A chargeback is a forced reversal of a card payment. The customer contacts their bank instead of you, the bank opens a dispute with the card network, and the payment amount is pulled back from your balance together with a fee. Stripe's documentation notes that you cannot refund the payment outside the dispute process while it is open, and that the outcome is decided by the cardholder's bank, not by Stripe (source).

A chargeback is not a refund. A refund is voluntary and you control it. A chargeback is taken from you and counts against your account. Stripe's guide separates the terms: the dispute is the process, the chargeback is the reversal, and a refund is the merchant's own return of funds (source).

Why SaaS customers file them

  • They do not recognize the charge. A vague statement descriptor or a forgotten trial that rolled into a paid plan.
  • They cannot cancel. Hidden cancellation buttons and slow support push people to the bank. A clear cancellation flow prevents more disputes than any evidence package.
  • Billing after cancellation. Stripe lists duplicate charges and continued billing after cancellation as material errors.
  • Fraud. A stolen card was used to sign up.
  • Friendly fraud. The customer used the product and then disputed it as a way to get money back.

The dispute timeline

According to Stripe, card networks generally let customers dispute within 120 days. After a dispute opens you typically have 7 to 21 days to respond to the issuer, depending on the network, and the issuer then usually takes 60 to 75 days to decide. The whole cycle can run 2 to 3 months. The amount and a dispute fee are debited immediately, and Stripe says the fee for receiving a dispute is not refunded. Stripe's chargeback guide puts per-chargeback fees at $15 to $100 or more depending on the processor.

How to calculate your chargeback rate

If you process 800 payments in a month and receive 6 disputes, your rate is 0.75%. At a $15 fee and a $29 average charge, those six disputes cost 6 x ($29 + $15) = $264 if you lose them all, before your time. Card networks run monitoring programs for merchants with high dispute rates, so check your processor's current thresholds.

How to prevent them

  • Use a recognizable statement descriptor with your product name and a support URL.
  • Send a receipt and a reminder email before annual renewals and before a trial converts.
  • Make cancelling and refunding as easy as signing up. Refund quickly when someone asks. A $29 refund costs less than a $29 dispute plus fee.
  • Respond to pre-dispute alerts and inquiries immediately. Stripe warns that ignoring an inquiry can lead to a formal chargeback that is probably impossible to win.
  • Use 3D Secure and fraud tools on signup if you see stolen-card abuse.

If you receive one

  1. Decide whether to accept or contest it. For small amounts, accepting may be cheaper than the effort.
  2. If you contest, submit complete evidence once, since issuers usually review it a single time: signup records, usage logs, IP addresses, terms accepted, and support emails.
  3. Cancel the subscription so you do not bill them again and trigger another dispute.

Small SaaS angle

Disputes also hide inside involuntary churn and customer churn numbers: a customer who disputes is a lost customer and a cost. Using a merchant of record moves chargeback handling to the platform, in exchange for higher fees.

Sources

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