The Complete Guide to Shopify Chargebacks: Prevention, Resolution, and Best Practices

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After years of running my own Shopify store, I’ve learned that chargebacks aren’t just annoying—they can seriously harm your business if left unchecked.

In this guide, I’ll walk you through everything you need to know about managing chargebacks on Shopify. From understanding what causes them to implementing proven prevention strategies, you’ll discover practical steps to protect your revenue and maintain your store’s good standing.

Did you know that chargebacks cost Shopify merchants around 0.47% of their total revenue each year? That might sound small, but it adds up quickly. Even more concerning, about 80% of chargebacks are fraudulent! Let’s dive in and learn how to tackle this challenge head-on.

Understanding Shopify Chargebacks

A chargeback happens when a customer disputes a charge with their bank or credit card company instead of contacting you directly for a refund. When this happens, the bank temporarily removes the funds from your account while they investigate.

Chargebacks were originally designed to protect consumers from fraud, but unfortunately, they’re often misused. As a merchant, this creates several problems:

  • The sale amount is removed from your account
  • You lose the product that was shipped
  • You’re charged additional fees for processing the chargeback
  • Your chargeback rate increases, which can lead to account restrictions

How Shopify Chargeback Rate is Calculated

Your chargeback rate is simply the percentage of orders that result in a chargeback. For Shopify Payments users, it’s calculated as:

Number of chargebacks ÷ Number of orders × 100 = Chargeback rate %

Keeping this rate below 1% is crucial. If your rate exceeds this threshold, Shopify might consider your business high-risk, potentially leading to restrictions or even removal from the Shop App.

Common Reasons for Shopify Chargebacks

Understanding why chargebacks happen is the first step toward preventing them. Here are the most common reasons customers file chargebacks:

  1. Fraudulent transactions – Someone used a stolen card to make a purchase
  2. Unrecognized charges – The customer doesn’t recognize your business name on their statement
  3. Product not received – The customer claims they never got their order
  4. Product not as described – The item didn’t match your description or photos
  5. Subscription confusion – The customer forgot they signed up for a recurring charge
  6. Return problems – The customer returned an item but wasn’t refunded

January sees over 40% more chargebacks than November and December, often because customers don’t recognize holiday purchases on their statements or experience buyer’s remorse after holiday spending.

Shopify Chargeback Prevention Strategies

The best way to handle chargebacks is to prevent them from happening in the first place. Here are some effective strategies I’ve used:

Clear Communication

  • Use a recognizable business name on credit card statements
  • Send order confirmations with detailed information
  • Provide tracking numbers for all shipments
  • Make your return policy easy to find and understand
  • Include your contact information on all communications

Robust Fraud Protection

Shopify includes basic fraud protection, but I recommend taking additional steps:

  • Require CVV codes for all transactions
  • Use address verification (AVS)
  • Be cautious with orders that have different shipping and billing addresses
  • Watch for multiple failed payment attempts
  • Consider using apps like Signifyd or NoFraud for additional protection

Excellent Customer Service

Many chargebacks happen because customers couldn’t easily reach you:

  • Respond to emails and messages quickly
  • Make your contact information visible
  • Offer hassle-free returns and refunds
  • Follow up after purchase to ensure satisfaction

The Shopify Chargeback Process

When a chargeback occurs, here’s what typically happens:

  1. The customer contacts their bank to dispute a charge
  2. The bank notifies Shopify and temporarily removes the funds from your account
  3. You receive a chargeback notification in your Shopify admin
  4. You have a limited time to submit evidence (usually 7-21 days)
  5. The bank reviews the evidence and makes a decision
  6. You’re notified of the outcome

Chargeback Fees on Shopify

Each chargeback comes with a fee, regardless of whether you win or lose the dispute:

  • Shopify Payments charges a $15 fee per chargeback
  • This fee is separate from the disputed amount
  • The fee may be refunded if you win the dispute, but policies vary

Disputing Shopify Chargebacks

When you receive a chargeback, don’t panic. You have the right to dispute it by providing evidence. Here’s how to increase your chances of winning:

Gather Your Evidence

Depending on the reason for the chargeback, collect relevant information:

  • Order details and transaction records
  • Proof of delivery (tracking information, delivery confirmation)
  • Customer communications
  • Your terms and conditions or return policy
  • Product descriptions and images from your store

Submit a Strong Response

  • Be factual and concise in your dispute
  • Address the specific reason for the chargeback
  • Include all relevant evidence
  • Submit before the deadline (this is critical!)

Shopify Chargeback Resolution

The resolution process typically takes 60-75 days, though it can sometimes take longer. During this time:

  • The funds remain withheld from your account
  • You can continue to communicate with the customer directly
  • You might be able to resolve the issue outside the formal dispute process

Possible Outcomes

  1. You win the dispute – The funds are returned to your account (and possibly the fee as well)
  2. You lose the dispute – The customer keeps the refund and you lose the chargeback fee
  3. You reach a settlement – Sometimes a partial refund can be negotiated

Managing Chargebacks in Shopify

Developing a system to manage chargebacks is essential for long-term success:

  • Track all chargebacks in a spreadsheet or management system
  • Analyze patterns to identify vulnerable areas of your business
  • Adjust your policies and procedures based on what you learn
  • Consider the cost-benefit of fighting each chargeback (some small ones might not be worth the time)

Shopify Chargeback Protection

Shopify offers some built-in protection through Shopify Payments:

  • Automatic screening of orders for fraud risk
  • Shopify Protect program for eligible merchants
  • Detailed analytics to help identify risky orders

Additionally, consider these third-party solutions:

  • Chargeback prevention apps from the Shopify App Store
  • Fraud prevention services that guarantee coverage for chargebacks
  • Order review services that manually check high-risk orders

Reducing Shopify Chargebacks: Best Practices

Here are my top tips for keeping your chargeback rate low:

  • Deliver excellent customer service – Make it easier to contact you than to file a chargeback
  • Use clear billing descriptors – Make sure customers recognize charges on their statements
  • Document everything – Keep records of all orders, communications, and shipping information
  • Implement a pre-emptive fraud strategy – Use tools to identify potentially fraudulent orders before fulfillment
  • Be transparent about products and policies – Accurate descriptions and clear policies prevent misunderstandings
  • Follow up after purchase – Send satisfaction surveys and address any issues quickly

Remember that January sees a significant spike in chargebacks. Plan ahead by strengthening your prevention strategies during and after the holiday season.