About chargebacks: How to protect your physical goods store from scam

May, 22, 2025

A chargeback is a forced transaction reversal initiated by a customer’s bank or credit card issuer. It occurs when a cardholder disputes a charge—commonly for reasons such as not receiving a product, receiving a damaged or incorrect item, or claiming the transaction was unauthorized. Instead of contacting the seller directly, the customer asks their bank to reverse the payment. The funds are then pulled from the merchant’s account and temporarily (or permanently) returned to the buyer. While chargebacks were originally designed as a consumer protection mechanism, they’re often misused and can be highly damaging for honest sellers—especially those operating in e-commerce. As a seller, understanding chargebacks and taking proactive steps to prevent and fight them is critical to protecting your revenue and reputation.

Common chargeback types and causes in E-Commerce

• Fraud/Unauthorized Transaction: The cardholder claims they didn’t authorize the purchase (often due to stolen credit card details or identity theft). Friendly fraud can fall here too – a legitimate customer falsely reports a transaction as fraud.
• Item Not Received (INR): The customer claims the goods never arrived. This may stem from legitimate delivery issues or be a false claim.
• Product Not as Described / Defective: The customer disputes the charge claiming the item didn’t match the description or arrived broken.
• Clerical or Processing Errors: Mistakes such as duplicate billing, wrong amount charged, or failure to refund.
• Subscription or Recurring Billing Issues: Disputes related to unexpected or unwanted subscription renewals or charges.

Does signature confirmation protect against chargebacks?

Requiring a delivery signature is one of the strongest defenses against "Item Not Received" chargebacks. Major carriers (UPS, FedEx, USPS) offer this service for a small fee, which ensures the package is only handed over if someone signs for it at the delivery address.

When a customer files an INR dispute, providing a signed delivery confirmation is compelling evidence. In many cases, this alone is enough for the seller to win the dispute. It shows that the package was delivered and accepted by someone at the given address.

However, it’s not foolproof. Here are some scenarios where chargebacks may still happen:

• Signature mismatch: The person who signs for the package is not the cardholder (e.g., a roommate, neighbor, or front desk clerk). Some banks might side with the customer who claims they didn’t authorize that person to receive the item.
• Fraudulent orders: If a stolen credit card was used, and the fraudster signed for the delivery, the real cardholder can dispute the charge. The signature is then considered evidence of delivery to the thief, not the cardholder.
• Alternate dispute reason: Customers can dispute the order for reasons like “product not as described” or “item defective,” where signature confirmation holds little weight.
• Carrier failure: Occasionally, the carrier may fail to collect a valid signature or may leave the item without obtaining one, especially in certain delivery zones.
• Bank discretion: Banks often lean in favor of the cardholder during chargeback reviews. Even strong evidence like a signature can be dismissed if the case isn’t presented clearly or if the signature is illegible.

Real-world example: A furniture seller shipped four high-value items using signature-required FedEx delivery. All packages were marked as delivered and signed for. Still, the real cardholder later disputed the charges as fraudulent, and despite providing delivery proof, the merchant lost all four cases. The bank ruled that the signature did not belong to the rightful cardholder.

Third-party chargeback protection vs. carrier signature services

Important note: Third-party protection services don’t approve every order. If they flag an order as high-risk, you're left with a decision: cancel the order and lose the sale, or fulfill it without coverage—taking on the full risk yourself. This creates scenarios where merchants may lose revenue even from legitimate customers, simply because the platform didn’t approve the transaction.

Some businesses use third-party solutions like ClearSale, Signifyd, or NoFraud to prevent or cover chargebacks. These services charge a fee (often 0.5–1.5% per order) and screen transactions for fraud. If a screened order turns into a chargeback and was previously approved, they reimburse the merchant.

For high-ticket products, this can be a deal-breaker. In such cases, it may be more cost-effective to pay a static signature-required shipping fee (e.g., $5–$10) rather than a percentage-based third-party fee (e.g., 1% of a $2,000 item = $20). Merchants should weigh these trade-offs based on order volume, margins, and average order value.

‍

Comparison overview:

Legal and procedural strategies to reduce chargebacks

Customer Verification for High-Risk Orders: When an order raises red flags—such as mismatched billing/shipping addresses, unusually large value, or other risk signals—don’t hesitate to verify it before shipping. You can email or call the customer to confirm the order details. Some merchants go a step further and request a scan or photo of the customer’s ID or credit card (masking all but the last 4 digits). Others ask for a selfie holding the ID to verify identity. These steps, while adding friction, are highly effective in preventing fraud. A legitimate buyer will usually cooperate, especially for expensive items. Fraudsters, on the other hand, tend to vanish when challenged. This manual review process can save thousands in chargebacks on high-ticket orders.

• Clear Terms and Conditions: Display your shipping, return, and refund policies prominently. A well-structured terms page gives you leverage during disputes.
• Accurate Product Descriptions: Prevent “item not as described” claims by using detailed, truthful descriptions and multiple high-quality images.
• Strong Customer Service: Make it easy for customers to reach you before they resort to a chargeback. Responding quickly to complaints or shipping issues can de-escalate potential disputes.
• Proof of Delivery: Use carriers that offer tracking and either signature or photographic proof of delivery.
• Verify High-Risk Orders: For expensive or suspicious orders, verify the customer’s ID, request additional confirmation, or contact them by phone or email.
• Recordkeeping: Keep copies of order details, tracking numbers, customer communication, and shipping documents. These form your defense packet in a chargeback dispute.

Bonus: Are "No Chargeback" clauses legal?

Including a “no chargeback” clause in your terms of service may seem like a solution, but it's unenforceable. Credit card networks give cardholders the right to file disputes, and merchants can’t override this right by contract. However, you can add a clause that states customers must attempt to resolve issues with you directly before initiating a chargeback. While not binding on banks, it may dissuade some customers from disputing impulsively.

What about legal action?

If a chargeback is clearly abusive or fraudulent, some merchants pursue small claims court or file police reports. While rare and only worth the effort for higher-value disputes, this option shows you’re serious about protecting your business.

Best practices for high-ticket orders

• Require signature for all orders over a certain threshold (e.g., $300–$500).
• Use fraud analysis tools to assess risk before fulfillment.
• Offer insurance for high-value shipments.
• Request customer acknowledgment for large or custom orders.
• Use payment methods with built-in seller protection (e.g., PayPal, Shop Pay). For instance, PayPal requires proof of delivery with signature for items over $750.

Final thoughts

Chargebacks are part of doing business online—but they don’t have to be unmanageable. By using carrier signature confirmation, setting clear expectations with customers, and implementing proactive fraud prevention tools, sellers can significantly reduce their exposure to disputes. For businesses with tight margins, investing in smarter shipping policies may be a better solution than paying ongoing third-party fees. The right approach depends on your order volume, ticket size, and risk tolerance—but understanding your options is the first step in protecting your business.

‍

Sources

1. Shopify – What Is a Chargeback and How Do I Dispute Them?
2. Commerce Caffeine – Shopify Chargebacks: The Ultimate Guide
3. Chargeback Gurus – Fighting Chargebacks with Delivery Confirmation
4. Chargebacks911 – Can Delivery Confirmation Help Prevent Chargebacks?
5. ClearSale Blog – Shopify’s Approach to High-Risk Orders & Chargebacks
6. eCommerce Paradise – ClearSale Review: Features & Pricing
7. Chargeback.io – How to Handle High-Risk Orders on Shopify
8. PayPal Seller Protection Policy
9. Mastercard Chargeback Guide
10. Visa Dispute Management Guidelines for Merchants