Payment Disputes - How to Mitigate Them and Mindset Tips Around Them
Sep 05, 2022
Hey there, everyone! Today, I want to talk about a subject that is, honestly, pretty scary to consider. But it’s important that we talk about it anyway so that you can be fully prepared if it does happen to you.
No matter what service you offer, if you are accepting credit cards in your business—especially if it's through third-party applications like Stripe, PayPal, or things like that—there is risk that you take of being hit with payment disputes. So today, I’m going to talk about the ways that you can prepare yourself against failed or defaulted payments. This is something that I don't experience it very often in my business, to be honest, but I have really frontloaded my systems to make sure that my risk of this happening is lessened. I did have to go through one dispute process, and I've seen my clients walk through payment disputes, so I want to help you think about ways that you can come to terms with it, and also ways that you can prepare and protect yourself.
Benefits of Credit Card Apps
Disclaimer: I'm not an industry leader in defaulted payments. I'm not a lawyer. This is not legal advice. But I at least want to prepare you as best I can through my limited experience.
A lot of people will accept payment through PayPal and Stripe. I'm one of them, and I will sing their praises all day long, especially Stripe. I prefer Stripe. I find it to be more user-friendly. It integrates better with other platforms. I am a Kajabi buy-in through and through, as you all know by now, and they allow you to take PayPal and credit cards through the third-party app called Stripe. These are worth it when you're selling high-volume, or when you want to make the client payment journey very easy. And trust me, making the client payment journey easy is really important when you're trying to grow a business that doesn't require a ton of extra administrative support. You want to be able to let people effortlessly purchase your programs at any time, and that's going to be worth the cost of the bank fees. They all charge about 2.9%. That's pretty much the industry standard for accepting credit cards. So as much as it can be annoying to pay a fee for these platforms, they're more than worth it because they cut down on a ton of administrative work for you to have a system in place so that you can easily get paid and your clients can easily pay you.
The Dispute Process
So let’s talk about the actual payment dispute process. I don't want to start talking about Stripe and PayPal and make it sound like they're bad things because they leave you open to payment disputes. The truth is that when you are taking credit cards or PayPal, you are susceptible to payment disputes in your process. There is a risk that people can file a claim against you with PayPal or with Stripe saying that they didn't understand their terms, or that you didn't deliver upon your service or product. When that happens, Stripe or PayPal will open up an investigation and immediately pull the funds from you while they undergo that investigation. If they decide that they rule in your favor, they're going to return the money to you. If they decide that they rule in your client's favor, they're going to keep your money and refund it to them. This is important because the more sales that you make, the greater your risk is that this might happen.
So that’s one thing that you need to be aware of. If somebody files a dispute, even if they're flat-out wrong, the money is still gonna be pulled.
You may get it back. But in the meantime, because these platforms have direct access to your bank, they will either pull it directly out of your bank or out of a balance if you have one sitting there. So with PayPal, you can keep a balance and it will come straight out of your balance.
If it’s Stripe, or if you don’t have a PayPal balance, it will come straight out of your bank. And if you don't have the money in your bank account, they're still going to pull it straight out and it's going to cause you to overdraft.
And now you're gonna be getting hit with bank fees and you're gonna have to wait for the dispute process to be done, which can sometimes take weeks to finalize while you submit the paperwork that backs up that you did everything right.
How to Avoid Payment Disputes
Honestly, I've only ever had this happen one time in my own business, and since I started my business in 2018 and I'm recording this in 2022, that’s a pretty big indicator that I've figured things out on the front and the back end to avoid this from happening.
Firstly, I do what I say I'm going to do, so people don't want to dispute products with me or services with me. They're happy because I deliver upon it. It’s always my goal to go above and beyond expectations, and I do a good job of that.
I don't offer refunds, but another way I protect myself from payment disputes is by being very slow and methodical when I'm bringing people into my world to purchase my courses. I have a sales page, and when you go to take the next step, you don't just get to purchase. You have to go through a graded assessment that I have set up to really make sure that the person is the right fit. And not only am I doing things to make them think about whether or not this is the right thing for them, but I make sure that they’re clear on what they're getting and they're clear on what they're not getting.
You can protect yourself from payment disputes just by being extremely clear on what you say you're going to do and clarifying what you don't do. This way, they have to acknowledge that they understand your exact offering, and they can’t claim they didn’t understand that your package did or didn’t include certain things.
It’s also best to have terms listed right on your website where people can see them. You want to cover everything related to the sale here. So, do you have refunds? What is the policy? What are they purchasing? Those things can help you reduce the number of payment disputes that you may end up getting or eliminate them altogether.
When I went through a payment dispute on Stripe, I looked at the documentation that they were going to ask for. They asked for the terms that I have on my site. They asked for a screenshot of that site. They asked for my refund policy, which I do have; they wanted to see proof of my terms, which I do have.
I won that payment dispute and I ultimately got my money back, and a lot of my clients do put these systems in place and get their money back. But you also want to keep a reserve in your bank account that makes it less likely that you will default if one of your bigger payments has a dispute.
Payment Disputes are Worth the Risk
The last thing that I want to leave you with is the understanding that payment disputes are still a risk of doing business, but it's still worth taking that chance. It is worth it to take on the risk of a payment dispute that is unjustified to be able to serve people at a higher volume.
You're going to recoup probably more than 99% of those sales, and your payment dispute rate is probably going to be less than 1%. As long as you do all of these other things—you've got a good product, clear terms, and you're set up legally—chances are you're going to win those payment disputes.
You don't want to be super nonchalant about payment disputes either, though. You want to fight them. You want to be clear about what you accept and what you don't accept, and you want to be able to back yourself up and fight these payment disputes and ultimately win. Hopefully, this helps you prepare yourself for payment disputes and eases some of your anxiety surrounding using these third-party platforms for payment!
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