Chargebacks have long been a problem for businesses in the hospitality industry. When it comes to these types of claims, the worst thing you can do is nothing. According to industry experts, understanding why chargebacks occur and developing a strategy to deal with them could help any vacation rental management business reduce the number of chargebacks and protect its revenue.
Why and How Do Chargebacks Occur?
In general, a chargeback occurs when a cardholder disputes a transaction, and the card issuer agrees to return the funds to his or her bank account. Although there are different types of chargebacks, most claims in the lodging industry happen due to the following reasons:
- the properties weren’t as advertised on the listing sites;
- the amenities promised weren’t available;
- guests had to leave earlier or were unable to use the vacation rental at all because of a problem with the property;
- guests canceled their booking and requested to have their advance deposit/full amount refunded, but the transaction has been refused according to the vacation rental agreement;
- property managers charged an additional amount to the guests’ credit/debit cards or retained the security deposit in order to cover property damage caused by the guests, but the guests didn’t recognize the transaction on their statements or objected to paying for damages;
- an error has led to duplicate processing or charging a guest the wrong amount;
- someone booked a vacation rental using a stolen credit card.
How Chargebacks Can Hurt Your Vacation Rental Management Business
Chargebacks can harm your business in both the short and long term. Besides leading to revenue loss, which can put a dent in your profitability, chargeback disputes may cause you to waste a lot of time and resources that you could otherwise spend on other business activities. Not to mention that multiple chargebacks can ruin your business’s reputation and endanger your relationship with the payment processors. But to better understand the effects of chargebacks on your business and the vacation rentals you manage, let’s take a look at how the process works.
To begin with, when a guest uses a debit or credit card to book a vacation rental, there are three entities involved in the transaction: the payment processor, the cardholder’s issuing bank, also referred to as the card issuer, and the acquiring bank, which is the bank that processes debit or credit card payments on your behalf.
When a guest requests a chargeback, the card issuer determines whether the request is valid or not. If the bank decides to issue a payment reversal, it notifies the card processor, which will remove the funds from your account and send you a notification of the chargeback. Once you receive the notification, you have the option to either accept or contest it.
Assuming that you decide to contest the chargeback, you’ll have to resubmit the charge to the acquiring bank and present supporting evidence (e.g. listing descriptions, photos, check-in details, any attempts to resolve the matter directly with the cardholder, proof that the guest agreed to the terms and conditions during the booking process, etc.) that contradicts the guest’s claim and prove that the transaction was legitimate.
If the card issuer determines that the chargeback is valid, the funds being held by the card processor will be returned to the cardholder. If the chargeback claim is false or inaccurate, the funds will be returned to your account. In that case, the bank will notify the cardholder of the decision, and the cardholder can either accept or dispute it. If the cardholder decides to escalate the dispute further, the credit card company will take over, reviewing all the documentation and making a final decision.
What You Can Do to Prevent Chargebacks
Because chargebacks can be difficult to dispute and have unpredictable outcomes, the best thing you can do is prevent them.
First, if a guest is entitled to a refund, make sure that you issue the refund promptly. Failing to process refunds in a timely manner may lead to chargeback claims. In case you lose the disputes, you may incur transaction fees, penalty fees, and operational costs in addition to the original transaction amount the card processor will remove from your account.
Second, be precise in your listing descriptions. As well, review existing listings and photos regularly for any inaccuracies or anything else that might be misinterpreted by a potential guest.
Third, document everything carefully. Nowadays, you can find comprehensive lodging management software, which permits vacation rental property managers to record different business operations, transactions, and tasks down to the smallest detail. Some solutions even allow managers to require cleaners to upload and send photos before they can mark a vacation rental as clean. Thus, if a guest requires a payment reversal claiming that the property hasn’t been cleaned before his or her arrival, you can present detailed checklists and photographic records and prove that the claim isn’t valid.
Fourth, work with a company that screens your guests so that you may avoid guests that have a habit of submitting chargebacks when they weren’t warranted.
Dealing with chargebacks is one of the most difficult parts of running a vacation rental management business. If you haven’t encountered a chargeback yet, that’s great. But it’s a good idea to be prepared, so you know how to handle these types of claims when they occur. To learn more about our lodging management software and how it could help you fight chargeback claims, get in touch with our friendly professionals today!