Prevent payment disputes
About payment dispute prevention
With every card payment you take, you and your customer are entering into an agreement, meaning that you can be held liable for the payment amount if your customer disputes the payment. Cardholders can initiate a payment dispute or chargeback by asking their bank to reverse the charge. But you have a better chance of avoiding disputes—and when they do happen, of convincing your customer’s bank that you’re in the right—by following a few best practices.
Before you begin
You can strengthen your Square account — with most of the steps below — from your Square Dashboard. Square recommends precautions to lower your risk when you:
Set up your Square account
Accept card-present transaction
Accept card-not-present transaction
Accept high-volume transactions
Strengthen your identity and communication
Write out and present your return, refund, and cancellation policies on your receipts or any other agreements made at the point of sale. Presenting a no returns/refunds/cancellation sign at the point of sale is not sufficient to verify your business’s policies. You’re more likely to avoid or win a dispute if you can show that the customer signed a printed receipt or invoice in which these policies are clearly explained. Learn how to customize receipts.
Keep in mind that you can always resend a receipt from your the Square Dashboard or Square app so your customer has proof of purchase.
Add your phone number, address, website, and social media pages to your receipts. This will help a customer reach out to you directly if something goes wrong with a sale, rather than immediately filing a dispute with their bank.
If your business name isn’t saved correctly within the Square Dashboard, or doesn’t reflect the types of goods or services you provide, it may confuse your customer when they review their bank statement. When they see a name they don’t recognize, they’re more likely to call their bank and initiate a dispute.
For example, it’s best not to use your personal name as your business name, because customers will be looking for your business name on their statement. If you don’t have a business name, use your service type followed by the name of the city where you provide the service (i.e. “Taxi - Austin, TX”).
Open communication with your customers is one of the best ways to clear up confusion and reduce the likelihood of disputes. It helps to clearly communicate your expectations around pricing, sales tax, delivery, shipping, and the services you provide. Learn how to get started with Customer Engagement.
Provide a clear and accurate description of what you sold for every transaction. This can help refresh a customer’s memory and prevent a dispute from happening.
If writing descriptions for each transaction isn’t feasible for your business, create an item library. Then, when you process a sale, select the items or services sold and they’ll be added to the receipt.
Use Square Feedback to collect comments from your customers about their purchase. If a customer has a problem with a sale, they can reach out to you directly from their digital receipt. You may be able to respond, issue a refund, or resolve the issue without ever having to enter the dispute process.
Accept card-present transactions safely
Purchases made when your customer and their payment card are present are less likely to be disputed than a payment made remotely. Follow the practices below to minimize the risk of disputes when making card-present transactions.
EMV (chip) cards are more secure than traditional magstripe cards, so card issuers have introduced regulations to make sure sellers correctly process chip cards whenever possible.
What this means for you as a seller is that if you swipe a chip card rather than using a chip reader, you are automatically liable for any fraudulent transactions.
If the card is physically present for a transaction, always insert the chip or tap the card with Square hardware. If it is not a chip card, swipe the magstripe stripe and chip card through the magstripe reader on Square Terminal, Square Stand (1st generation), Square Register, and Square Reader for Magstripe.
When possible, ask your customer for a government-issued ID to confirm that they are the legitimate owner of the card being used.
A physical or digital receipt is a record of the transaction for both you and your customer. Sending digital receipts can also help a buyer recall what a charge was for. In the event of a dispute, we can use a receipt to challenge the dispute with the customer’s bank.
Accept card-not-present transactions safely
With eCommerce or Virtual Terminal payments, naturally, the customer doesn’t have to be physically present. Since you can’t physically verify that the person making the transaction is the cardholder, we recommend taking the steps listed below to minimize the risk of payment disputes.
Ask a customer to provide the card number, the name on the card, billing address, expiration date, and CVV code on the back of the card.
If you are shipping a product, make sure to keep the tracking information and a delivery receipt. For large orders, require a signed confirmation of delivery.
If you provide a service, be sure to prepare a signed and dated document outlining the services provided and the buyer acknowledging they have received the services, like an itemized invoice – or other proof of the services rendered, like screenshots from social media. Another example of proof of service is to ask your customer to review and sign a work order and keep it for your records.
To strengthen your case, you should provide evidence showing your customer acknowledged and signed your business’ terms and conditions at the time of payment. A signed and dated contract that shows full terms and conditions of a sale is especially helpful in defending against payment disputes.
With Square Contracts, you have the ability to create and send contracts right from your Square Dashboard. The available contract templates are designed to be customized for your unique business needs — empowering you to establish clear agreements with your customers, secure digital signatures, and avoid potential payment disputes.
Disclaimer: Square is not a law firm, an attorney or a professional advisor in any industry. Square provides this template to individuals who choose to prepare their own contractual documents and does not constitute legal advice. See Square Contracts Terms and Conditions.
Get to know your customer before completing a large transaction. Verify your customer’s identity, billing address, and business (if applicable) prior to processing a high-ticket item or sizable order. Search social media or search engines to seek the legitimacy of a customer or ask for a government-issued ID and match the name on the photo ID to the name on the payment card.
If you’re shipping an item, check whether the billing and shipping ZIP codes match. If they don’t, ask your customer why. Their answer should make practical sense. If it doesn’t, don’t accept the payment.
To find out more about accepting credit card payments, check out our Seller Community.
Accept invoices safely
Doing this ensures that the customer accepts and recognises each payment that is processed, reducing the likelihood of a dispute. If you want to keep a copy for your records, you can always copy your own email address or phone number to the message you send.
Your customer has a few attempts to pay an invoice. For your protection, Square cancels an invoice if the customer reaches a maximum number of attempts. If you receive this message, we strongly recommend verifying your customer’s identity, seeking an alternate method of payment such as check or cash, or declining to complete the sale.
Accept high-volume payments safely
If you’re processing multiple transactions for one item over a period of time, obtain a signature for each individual payment. In the item description, clarify that the payment is an “installment payment.” This ensures that you’re on the same page as your customer and protects you if they ever claim that any of the transactions were unauthorized.
If you have a recurring charge with a client, acquire written cardholder permission to periodically charge for the recurring services or goods. On the written agreement make sure to include:
- transaction amounts
- frequency of the charges
- duration for which cardholder permission is granted
- cardholder’s signature. Learn how to manage signatures for payments
If you wish to refund a payment, always issue the refund directly back to the payment card. If you must provide a refund via cash, check, or money order, make sure to obtain a signed agreement that your customer received the refund.
Never have your customer sign a statement waiving their right to dispute the transaction with the card issuer. This is a card network violation and will impact your chances of winning a payment dispute if one occurs. It’s best practice to set expectations with your customers and ensure they understand how transactions with your business work.
All Square merchants have a per transaction limit of $50,000.
If you’d like to accept individual transactions above $50,000 each, you’ll need to split the payment into multiple installments. Make sure to record the receipt number and the total amount charged for each installment. For the sake of security, we may sometimes reach out to customers to confirm this information.
Adding a service charge to a high volume payment can help cover any additional expenses outside the cost of the initial goods being sold. For example, you can add a service charge to cover bagging fees, delivery fees, or other related costs associated with a high-volume payment. Service charges can be a single flat fee or based on a percentage of the total sale amount. By adding a service charge, you can ensure that these additional expenses are accounted for and properly covered.
Individual states have their own rules and regulations regarding service charges. Learn how to Use service charges with Square.