What are Chargebacks? and How can chargebacks happen for SAAS companies? from Host Merchant Services's blog

A chargeback is a dispute a customer raises regarding the validity of a particular charge to the customer’s credit card. If a chargeback arises, the issuing bank does not release funds to a merchant until the bank has decided on the veracity of the transaction. A lot depends on how the bank rules based on its due diligence. If the bank rules in favor of the merchant (smb merchant services), funds are released to them. Otherwise, where the bank rules that the customer is correct, the charge on the customer’s credit card is reversed. The whole process of a chargeback arising, being disputed, and decided on is a lengthy one and burdensome requiring a significant amount of documented proof and recordkeeping.

How can chargebacks happen for SAAS companies?

For a Software as a Service company, chargebacks can happen in several ways. Maybe the software the clients thought they were purchasing didn’t pan to be everything they were promised. It’s important to evaluate the sales pipeline and closing process to gauge what kind of promises are made to customers that are too aggressive.

Another issue can be disenfranchisement with the software business are selling. Customer Support tickets may reveal that numerous customers may be complaining about the same issue repeatedly that isn’t being resolved. Since many SAAS are sold with recurring payments automatically charged to clients’ credit or debit cards, the customer may block the processing of such payment, a classic example of a chargeback.

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