Tips to reduce chargebacks

There are plenty of service businesses which benefit from customer tipping. Though most people think immediately of the restaurant trade, most people also tip hairdressers, taxi drivers, in bars, health and beauty spas, etc. Where the customer pays by credit card, there are rules as to the amount of tip which can be taken and also the authorisation needed. Knowing these rules will help to reduce costly chargebacks on your merchant account.

The main rule is that the business must get authorisation for the entire bill. That may seem like a given, but many restaurants, for example, will attempt to charge the tip separately to the main bill. This usually occurs because of an automatically assessed 20% tip authorisation which covers the expected tip.

This means that the customer might be overcharged. If, for example, they have left the tip in cash, the card will still be charged the 20% tip.

When that happens, a number of things are likely to occur:

  • The customer will complain. You’ll feel obliged to offer some sort of compensation, perhaps a free meal for two.
  • The customer will tell anyone they see of the terrible service and the way ‘you tried to scam them’. You’ll lose potential customers through the power of word of mouth.
  • Your merchant account will make a chargeback, you’ll lose the original amount paid and pay a penalty charge.

Here’s how to ensure you never run into these problems:

  • Train employees to only seek authorisation for the amount of the bill. Let them know the consequences of over- authorisation.
  • Set your payment processing system to a zero percent tip authorisation. Your POS terminal provider will do this for you if you can’t do so yourself.
  • Finally, make sure that any tips given are clearly stated on the receipt and added to the bill. Train your employees to show the customer exactly what is being authorised.

Posted in Merchant Accounts, Payment Processing.

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