What is a chargeback (and how is it different from a charge-off)?

A chargeback is what happens when a customer disputes a charge with their bank or credit card issuer rather than with the merchant directly. The bank investigates, and if the dispute is upheld, the original payment is reversed and the funds are pulled back from the merchant. This is fundamentally different from a charge-off, which is an accounting move on the creditor's books that has nothing to do with banks reversing transactions.

Chargebacks usually happen for one of three reasons: the customer claims the transaction was fraudulent (they did not authorize it), the customer claims the goods or services were not delivered as described, or the customer claims they were billed twice or in error. Each card network (Visa, Mastercard, etc.) has specific rules and timelines for how chargebacks are processed and what evidence the merchant can submit to dispute them.

For service businesses, chargebacks are most common when customers regret a purchase or dispute scope after the fact. The merchant's defense is documentation: signed work orders, completion records, customer communications, and proof of delivery. Without that paper trail, chargebacks are usually upheld in the customer's favor. Chargeback fees from the payment processor (typically $15-$25 per dispute, win or lose) add insult to injury.