The Pitfalls of Restaurant Chargebacks

Once upon a time, it was all so simple. A dining customer was presented with a bill they would settle there and then handed over a bunch of dollar bills. The diner went away happy that they'd paid their debt, and the restaurant owner was left to cater to the next customer.

Now, we have a more complex picture. A recent report from Forbes showed that now, only 9% of people typically pay for transactions with cash. Instead, credit cards, debit cards, and even virtual cards have become the preferred payment method. This can be great for the restaurant owner not to have too much cash knocking around the place, but it also brings complications.

The trouble starts when a customer queries a charge after the event. They then notify the financial institution behind the payment card. This body swings into action to decide whether the charge is legitimate or not. At best, you get a delay in payment; at worst, no payment. Welcome to the woeful world of restaurant chargebacks.

The pitfalls of restaurant chargebacks

There are plenty of possible chargeback hazards for the restaurant industry. Let’s go over the main ones.

Failing to address customer satisfaction

It’s gutting when your business doesn’t quite do it for a customer. When it becomes clear that a customer’s less than happy, you can at least seek to do something about it. You can up your game or offer an extra, such as a complimentary glass of house wine or free desserts.

But when an unhappy customer has paid up and left, this can lead to them deciding to take action. This can often be done by instituting chargeback proceedings.

Their beef may have aired at the time but was left unresolved. Alternatively, they may have kept quiet, planning on getting chargeback revenge. A lot of the time, the chargeback can be the first time the restaurant owner even heard of the problem.

Miscommunication and pricing discrepancies

Sometimes, there can be confusion over pricing. It can be the case that the customer pays up on the night. Then, on reviewing the credit card statement later, they think to themselves that it doesn't add up. 

You can use Deliverect menu management feature to easily update menu prices across all your digital channels in just a couple of clicks.

Delayed refunds and order cancellations

Let’s say a refund is due to a customer, but the transaction has snagged in the maze of banking checks you use to manage and keep track of your finances. If there’s a hold-up with a refund, a customer can take action by contacting their card issuer and going down the chargeback route.

Leverage Deliverect Plus refunds feature: Get visibility on where your refunds are going by channel. With actionable data, you could decrease order issues, increase staff performance, and find revenue opportunities.

Credit card fraud and unauthorized card usage

Unhappily, all things have their price, and the price for payment card convenience is payment card fraud. If a customer spots that a card transaction wasn’t one that they undertook themselves, they may suspect criminal fraud. They will then rightly seek redress. This is often done via chargeback.

Insufficient transaction verification and recordkeeping

If a member of staff fails to secure identification verification on delivering an order, this can lead to challenges to a card-not-present transaction’s legitimacy at a later date.

Lack of chargeback monitoring leading to fees and losses

Restaurants need to keep a close eye on chargebacks. It's vital to try to prevent these costs from mounting and presenting financial challenges to the business. 

Not only do restaurant chargebacks involve losing that customer’s payment. They also usually mean a chargeback fee of between $15 and $100 levied by the card company. Repeat offenders can face a substantial fine.

Strategies to minimize chargebacks in restaurants

So, chargebacks are a big deal. What can you do about them?

Maintain thorough documentation

The better your record-keeping, the less likely you will be hit with an unassailable chargeback. If you can readily identify detailed paperwork that corresponds to the original transaction, you’ll be in a better position to fight your corner.

Consider using general ledger software to keep all of your financial data backed up in one place. Also, make sure you create regular backup scans of all your important paper-based documents and receipts. These scans can then be saved to a cloud storage space, such as Google Drive, making them impossible to misplace. 

Prioritize excellent customer service

Minimize the chance of restaurant chargebacks by ensuring that the customer goes away delighted with their dining experience. Here are three areas to concentrate on.

• Select great staff: It sounds trite, but you need to make time for this or delegate to somebody else. You don’t have to do everything (although it sometimes might feel as though you do).

• Invest time and effort in training: Have regular staff meet-ups and make sure that everyone is on board with menu developments and pricing changes.

• Use order and accountancy softwares: Tools such as order management systems and accounting billing software can make sure that errors are reduced and that your accounts are organized. Reducing the chances of mistakes, “make do” scenarios, and, consequently, disappointing customers. 

Use fraud detection tools

Make sure that you have the most up-to-date tools and techniques at your disposal to combat fraud and avoid illegitimate purchases.

You should definitely have chip and pin readers, not just swiping consoles. If, for whatever reason, you’re stuck with swiping, make sure you get a signature from the cardholder and keep it pinned to the paperwork.

Also, keep an eye out for fraudulent transactions by getting to know your customers. If a lifelong vegan suddenly orders the fois gras special, you know you have a suspicious transaction.

Keep up-to-date with chargeback regulations

From time to time, there can be shifts in the regulatory framework, stemming either from the government or the credit card companies. Stay on top of these to maintain what’s known as EMV compliance, or face the regrettable consequences.

Address customer complaints proactively

It’s tempting to think that you can’t be anything but reactive when it comes to customer complaints, but that’s not true. Take previous complaints on board and act on them. Improve whatever aspect of the restaurant’s performance seems to be an issue and minimize the problems going forward.

Just desserts

Restaurant chargebacks are a real problem and can lead to major financial headaches. That said, by doing all you can to make the customer happy, you stand less of a chance of falling prey to a chargeback dispute. 

That means taking anti-fraud steps to make your customers feel more secure and doing all you can to give your customers an amazing experience they’ll be only too happy to pay for.

The restaurants that don’t pay attention to these areas end up reaping what they sow. Always remember that you’re not just in the business of selling great food; sure, that’s a big part of it, but the bottom line is that you’re there to serve up great experiences. OK, get serving.