General
What Is Dropshipping & How Do You Get Started?
Understanding dropshipping and steps to launch your own online business
May 2, 2024
16 min read
A chargeback will kill your dropshipping business. It’s like baseball, where you get three strikes and you are out. Refunds and returns are less detrimental because consumers get something back. Chargeback, on the other hand, is nothing short of being accused of fraud.
A chargeback means buyers tell their credit card issuer that the money you charged them is unauthorized or fraudulent.
Essentially, these customers skip an amicable solution between you and them. They do not want a fix or a remedy like item replacement or refund.
The difference between a chargeback and a refund is that the card issuer, or bank, gets involved. It is the bank that pulls money out of your account.
Of course, this does not happen right away. An investigation will commence, and you will be given the chance to defend yourself.
Nevertheless, you will pay a fee somewhere between $15 and $100, regardless of the outcome of the investigation. What this means is that you, the dropshipper, face the following risks and realities:
A chargeback is never a win situation for you, even if you get favored by the bank after the investigation. The only best thing to do is to prevent chargebacks from happening.
Here are the reasons why chargebacks happen:
Real fraud means the customer or cardholder never really ordered anything. His card was probably hacked and used to shop somewhere. In this case, the hacker may have shopped in your dropshipping store.
Perceived fraud comes in many ways, which includes lengthy and failed delivery. You cannot blame consumers for thinking they were defrauded if an item has not arrived within 30 days, which is common when using AliExpress or less reputable suppliers.
Other delivery issues include:
Another example of perceived fraud happens when a customer orders something, but does not remember it. He would think that the charge is unauthorized. This does not often happen to dropshippers, but mostly in software program transactions or subscriptions.
The most common example of merchant error is double charging. Yes, it can happen if there is a system bug. On some occasions, a merchant may have charged the wrong amount.
Financially, you do not want any kind of chargeback happening at all. Failure to mitigate this can end your business. In this section, I will share several potential bad consequences of chargebacks to your dropshipping business.
It does not matter if you win or lose the investigation. You will lose money. The bank or credit card issuer, by default, will charge you at least $15 simply for being accused of fraud.
It is not just the chargeback fee you have to worry about, but also the cost of the product, the cost of shipping, and the time and effort you spent in handling the investigation.
So, let us say you sold a product for $40 with a shipping cost of $10. The customer paid for this already, but she claims the item never arrived.
Where did the $60 go?
They went to your supplier. If you lose this chargeback case, the bank will take $60 from you, plus $15 for the fee. You lost $75 total. You may recover $60 from your supplier if they are in the wrong, but you will never get the $15 back.
You will lose credibility points or trust score as a merchant if chargebacks keep happening. Banks and payment processors will view you as a fraud, and they will eventually shut down your account.
The strictest of all these payment processors are:
Credit card processors and issuers will do the same thing. It takes only a few chargeback cases, and you lose your capability to receive payments with cards.
It does not even matter if you win or lose. Chargeback cases are so rare that when it happens, it raises a red flag in the eyes of the financial institution. They would think that you are trying to get away with fraud.
Generally speaking, the industry threshold for chargeback ratio is 1%. It means that if 1% of your transactions result in a chargeback, you’re done.
In the worst-case scenario, the payment processor or credit card company can ban you. If it is your first chargeback, they may just freeze your account and hold the money in there after the investigation is over.
If this happens, you can no longer process credit card payments. Worse, the credit card company will put you on a blacklist of merchants. This, of course, can also kill your future businesses because your identity is tied to this ban.
Nothing good comes out of a chargeback. Sadly, this can happen because some customers are panicky. Obviously, this takes into account that your supplier is also reliable and that you are honest.
Some dropshippers embellish their product descriptions, and when the customer receives the item, it is worse than what is described. These chargebacks, of course, are reasonable.
Avoiding a chargeback is the only way you can protect your dropshipping business from its consequences, and the section below will help you do just that.
While chargebacks cannot be 100% avoided, there are several ways you can reduce them. It is all about transparency and expectations. You cannot blame a buyer if he feels defrauded, but you can totally remove this mindset or suspicion right at the beginning.
Never ever lie in your dropshipping product descriptions. Many dropshippers do this because it makes the product more interesting. The end is always the same: an unhappy customer.
The worst outcome, of course, is a chargeback.
You should also be highly transparent when it comes to what the product can do. For example, do not make any ridiculous claims like “this battery lasts 48 hours” unless it is real.
In addition, do not use the images from your supplier if you know they are misleading. A good example that I see all the time is the inflatable swimming pool. Most images show that the product can fit eight people, but the actual product is way too small for that number of people.
There are many free image editing tools out there, like GIMP. Edit the image in such a way that the misrepresentation does not happen, and you will never have any disgruntled customers.
The last thing you want is to frustrate your customers. If they feel they have been lied to, they won’t even ask for a refund. They will go straight for a chargeback because they think you deserve it.
Make sure that the shipping info is available on every product page.
It is not unusual for customers to expect their packages in two days or just a bit more. As a dropshipper though, this is a big commitment and rarely, if ever done.
Some customers will immediately think they have been scammed if their packages take too long to arrive, but you can avoid this perception if you set the expectations right away.
It is advisable that you mention the expected shipping timelines on your product page. One common mistake that dropshippers make is they hide the shipping info for fear that a customer will not buy if the shipping takes too long.
What many do not realize is that this strategy, hiding the shipping time, can cause more damage to the business than if the sale never happened.
Always be in communication with the seller or supplier. Once the tracking number is out, send it immediately to the customer.
Some suppliers automate this process. Once the tracking number is out, it gets automatically sent to the customer’s email address.
It also makes sense that you check the status of the shipment yourself. If the shipping tracking site does not work, make a follow-up with the supplier to find out what’s going on, and relay the same information to your buyer.
This prevents the buyer from thinking that the transaction is fraudulent. Build trust by communicating, which takes us to the next piece of advice.
Customers want to know where their packages are. Some of them will not use the tracking number, not because they do not want to but because they may not be tech-savvy.
One of your duties as a dropshipper is customer service. If a buyer asks about the shipment status, provide a concrete answer. Do not tell them to check the tracking system, as this makes it look like the entire transaction is a con.
Fast responses are also appreciated. It is always a good practice to answer inquiries within 24 hours. But then, this may still seem delayed to some consumers, so you might as well use chatbots that can answer the most common questions about purchases.
A refund page is not optional in dropshipping; it is mandatory. Like the shipping timelines, the refund and return policy must be easy to find.
Ideally, the refund policy should be on the product page. Not that you have to write the whole process, but at least put a few sentences about how you process refunds. If not that, a short sentence about refunds and a link to where to find the policy should suffice.
A refund policy page gives the buyer the confidence to go ahead with the purchase, knowing that they can get their money back if their expectations are not met. In addition to this, they are not likely to file a chargeback if they know they can ask for their money back.
Some other tips that you can use to prevent chargebacks are:
One bonus tip: do not sell to high-risk countries. If a buyer makes a purchase and the shipping address is a high-risk country, do not proceed. The order does not even have to go through. All you need to do is configure your shipping section and block these countries.
High-risk countries are those that are either sanctioned or deemed by payment processors like PayPal as risky. Examples (as of this time) are Iran, Yemen, Haiti, etc.
A chargeback is scary. You are being accused of fraud, and your feelings are justified. The first thing you must do is to get your emotion out of the way. Do not be angry; be objective.
Once your panic and anger are out of the way, follow these steps.
Go to your merchant or payment processor dashboard. Every dropshipper has one. If you use Shopify Payments, then you will see the chargeback there. A next-steps guide is usually also part of that system; the same goes for PayPal, Stripe, etc.
Read the accusation. Then read it again. Try to understand what happened, and connect that issue with the right consumer, order, etc. Write down the series of events in a chronological manner, like this:
Take note of the dates. From this, write your explanations. Include the order ID, payment or transaction ID, shipping tracking number, and all other details.
More importantly, prepare screenshots and links as evidence. Include these screenshots in your response. Finally, mention a status or a resolution. For example, say specifically that the product is with customs and is out of your hands, or that the customer only has to wait a few more days.
After submitting your response, decide if you need to put your supplier on hold. Do this if the chargeback is caused by supplier error. If not, then there is no need to do so.
Do not forget to apologize for the inconvenience. Never lash out at your customer, as this will only exacerbate the situation. Keep in mind that most card companies rule in favor of the buyer. They want their money back, and you are in a very bad position here, so getting angry won’t help.
Keep calm and let the credit card company handle the rest.
From here, determine what caused the chargeback. Is it because of poor expectation settings? Is it because your product descriptions do not match the actual product? Find out and make the necessary changes. It would also help if you prepare response templates, like a refund template, so you can standardize your responses.
Dropship marketplaces do not handle chargebacks—they handle refunds and returns. A chargeback is a case filed against you, the seller, not the supplier.
Dropship marketplaces charge your credit card, and what can happen here is you can also file a chargeback against them, which I do not suggest you do, especially if they did their job.
A chargeback is a business risk, which you can only mitigate if you choose the right supplier. It is why you need to be picky when choosing a marketplace or platform. Chargebacks rarely happen when a supplier is experienced and professional. A professional supplier speaks proper English, provides accurate invoices and certifications, has a website, and is responsive. A bad sign is if you communicate with your supplier only via WhatsApp or similar messengers, invoices are lacking, and certifications they provide are of low resolution or generally raise red flags.
You are more likely to experience problems if you dropship straight from a platforms like AliExpress. Although they offer buyer protection, you will handle the chargeback on your own. On such marketplaces, necessary certifications (such as CE for sale of electronic products in the EU) are often fabricated, and shipping times are abysmal (1-2 months when stating 10 days is not out of the ordinary).
AutoDS, Spocket, and similar platforms are pretty safe, but they are also mere middlemen between you and suppliers. It’s the same thing—they can only offer returns and refunds as options, but they will not handle the chargeback for you.
Tradelle prevents chargebacks by following strict processes that all result in one thing: customer satisfaction. Tradelle understands that for businesses to thrive, each party has a responsibility to support each other.
Unlike platforms like AutoDS or Spocket, Tradelle is not a marketplace for suppliers. Instead, Tradelle is the supplier itself. No, they do not manufacture the products, but they are the conduit between you and the manufacturers.
What this means is that Tradelle now has an obligation as the supplier, not just as a platform where order processing occurs. Because of this, they are equally accountable for all kinds of issues as much as traditional suppliers are—which you will likely not even get ahold of on other platforms.
Tradelle offers an automated dropshipping system, which includes order fulfillment. Once a customer places an order, this goes straight to Tradelle, and they process the shipment.
A process like this reduces the risk of errors. Many dropshippers that do not use Tradelle do the ordering manually, which opens a Pandora’s box for mistakes.
Tradelle’s automated system also sends out a notification not just to you, but also to your customer once an item has been shipped. This notification includes the shipping tracking number, which allows the customer to know where the package is.
In addition, the order status is updated, and whenever this happens, you and your buyer both get a notification. It not only saves you time, but it also tells the customer that the package is on the way, thus preventing them from thinking that they have been scammed.
Finally, Tradelle has a global network of systems that ensure exceptionally fast shipping.
Tradelle also makes it a point that the products they sell are of high quality. These are affordable, but not like cheap knock-offs. Your customer is not likely to file a chargeback for feeling conned. On top of that, Tradelle’s 1-click import using their Shopify integration ensures that the product descriptions are accurate, not misleading. However, you are obviously free to adjust everything to your liking.
Because of all these, the likelihood of your customer filing a chargeback is close to zero. The only possible reason they would do that is impatience. If this happens, you will still win the chargeback case because Tradelle has your back—they have records of all communications, tracking numbers, and all other information you need to prove that you are not committing fraud.
A chargeback is a formal complaint that is nothing short of accusing you of fraud. This is very serious and should be handled with extreme care and urgency.
The biggest risk is getting your financial accounts banned for fraud accusations. Card companies or payment processors like PayPal can also put your money on hold.
Yes, it is a legal dispute, so it can get you in trouble. Not that you will go to jail, but your accounts with financial institutions may be suspended.
As a chargeback is filed with credit card issuers and not with payment processors, neither Shopify, nor Stripe, nor PayPal or any other platform gets a choice. However, they all offer dashboard and specialized forms to reply to the chargeback with the information available to you and to present your side.
Chargebacks are scary, and rightfully so. Once you get one, losing money in fees is inevitable, and the best thing to do is move forward and try to find out what caused it in the first place.
You can avoid chargebacks by working with a trusted dropshipping platform like Tradelle. They function not only as a product research platform, but also as suppliers, making them more reliable than most other dropshipping partners and suppliers.
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