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  1. #1

    How are chargebacks calculated?

    How are the chargeback % calculated? Most merchant accounts only allow for up to 1%.. Is this 1% based on number of sales or 1% of total cost? Anyone know?

  2. #2
    Quote Originally Posted by redoct2k3
    How are the chargeback % calculated? Most merchant accounts only allow for up to 1%.. Is this 1% based on number of sales or 1% of total cost? Anyone know?
    The general rule of thumb is that the dollar amount of chargebacks cannot exceed 1% of the dollar amount in V/MC sales per month. So if you have $10,000 of V/MC sales in a month, your total dollar amount of chargebacks cannot exceed $100.
    Dave
    PH: 800-761-7475
    PH: 802-876-5087
    www.RiskPayments.com

  3. #3
    Join Date
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    Most merchant processors will state their chargeback policy in the merchant agreement that you sign. Usually it is a 1% ratio as Dave mentions above.

    However, on the Visa and MasterCard monitoring side, it is a little bit different. As of the last time I read the guidelines, you'll need to hit 100/25 (Visa/MC) transactions and then have a minimum of either 1% chargeback-to-sales ratio with Visa or either a 1% cb-to-sales or 2.5% cb_trans-to-sales_trans ratio for MasterCard to trigger the high risk monitoring program.

    Just keep in mind that your merchant processing agreement is not between Visa and MasterCard and you but rather between you and your merchant processor. They have the authority to impose more stringent guidelines than Visa & MasterCard do to them in order to manage their risk and avoid loss so you'll want to use what -they- state as their policy with respect to chargebacks to guide you.

    One other quick note... the way that each merchant processor handles risk and chargeback ratios does vary. So for example, if you were a merchant with a given processor and you ran $10,000 in sales and then had a $300 chargeback, that would be 3%. And while per a contract that might allow a processor to take action, any reasonable processor would likely take no such action at all. On the flip side, if you had a $1,000-2,000 chargeback or $1,000-2,000 worth of chargebacks on $10,000 in sales - that would be cause for major concern.
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