If you’re just getting started with credit card processing, you might not be aware of chargebacks. Knowing what a chargeback is and how it can affect your business is the first step in protecting yourself if your business is issued a chargeback.

To put it simply, a chargeback occurs when a customer initiates a dispute over the legitimacy of a credit card transaction. The dispute usually arises due to an unfamiliar transaction that the customer notices in their bank account. If the customer decides to challenge this transaction, they will bring it to the attention of their credit card provider.

Once the customer brings the transaction to the attention of their credit card provider, the card brand will remove the disputed dollar amount from your business’s bank account and return the funds to the customer. If you decide to dispute the chargeback, then you will need to provide adequate proof that this transaction, product delivery, or service was rendered. You can do this by submitting original receipts, product tracking, or other documentation to the card provider.

One of the most common misconceptions about chargebacks is that the disputes occur because of fraudulent credit card transactions. While this is one reason why a chargeback may be initiated, there are actually several reasons why a chargeback might occur, including but not limited to; if the customer continued to be billed after canceling a service, due to defective products, or if an order they placed wasn’t received.

While the chances of getting a chargeback are very low, you should be well informed on the topic so you can prevent their occurrence and increase the chances of winning a potential dispute. It is important to dispute illegitimate chargebacks if they occur to keep your business’s chargeback rate low. If your business has a higher chargeback rate, then it can compromise your reputation and diminish the number of banking institutions that want to work with you.