The notification is easy to miss. An email from the payment provider with a reference number, an amount, a four-digit reason code and a deadline. The transaction it refers to happened in April. The goods went out, the customer was happy, the money cleared, and the sale has long since been banked, reconciled and spent.
Then it is taken back out of the account, along with a fee, and you are invited to prove the sale was legitimate — to a body you have no contact with, under rules you have never read, on evidence you may not have kept.
Chargebacks are the least-understood cost in card acceptance, and they are worse for small businesses than for large ones for a structural reason: big merchants have a dedicated team and an evidence template, and you have a shoebox and forty minutes on a Sunday.
A chargeback is not a refund, and not a legal claim
A refund is a payment you choose to make. A chargeback is a reversal the customer's card issuer initiates, under the operating rules of Visa, Mastercard or American Express — not under UK consumer law. That distinction has three consequences worth understanding.
The money moves before the merits are considered. The scheme rules and the reason code determine what evidence counts, not what would persuade a reasonable person. And the deadlines are set by the scheme: merchants get 30 days to respond under Visa and 45 days under Mastercard, and missing the window loses the case regardless of how good your evidence was.
The customer typically has up to 120 days from the transaction date to raise a dispute — and for online orders of physical goods, that clock generally starts from the expected delivery date rather than the order date. Which is why a dispute can arrive on a sale you had entirely forgotten about.
What it actually costs
Illustrative arithmetic on a single £420 disputed sale. The £420 is taken back. The provider adds a chargeback administration fee — commonly £15 to £25. The goods are gone, so at a 45% gross margin you have also lost £231 of stock at cost. You spend perhaps two hours building the evidence pack. If you win, you get the £420 back, and typically not the fee.
So the visible cost of one chargeback on a £420 sale is somewhere around £670 before your own time, and about £250 even in the best case where you win.
The invisible cost is the ratio. Visa's Acquirer Monitoring Programme tightened its merchant excessive threshold to 1.5% on 1 April 2026, combining fraud reports and chargebacks into a single ratio measured against settled card-not-present transactions, with a fee of around $8 per dispute for merchants above the threshold and no warning tier. Mastercard operates its own equivalent monitoring. For a small merchant doing modest online volume, it takes very few disputes in a quiet month to breach a percentage threshold, and the consequence at the far end is a payment provider deciding you are more trouble than you are worth.
Losing the money on one disputed sale is annoying. Losing card acceptance because your dispute ratio breached a threshold in a quiet month is a different order of problem entirely.
The four reasons, and what beats each one
Almost every dispute falls into one of four categories, and the evidence that wins is completely different in each.
Fraud — the cardholder says they did not authorise it. The defence is authentication: if the transaction went through 3D Secure and the issuer approved it, liability for fraud generally shifts to the issuer, which is the single strongest reason not to disable it to reduce checkout friction. For card-present sales, chip and PIN does the same job.
Goods or services not received. The defence is delivery evidence: tracking showing delivery to the cardholder's billing address, and a signature for anything of value. Delivery to a different address than the one on the card is where these are usually lost.
Not as described, or defective. The defence is the listing, the photographs, the specification and the correspondence — plus your returns process, because the issuer will ask whether the customer tried to return it and what you said. This one overlaps directly with your obligations under what you must legally give on refunds and returns, and a customer who was wrongly refused a lawful refund tends to win.
Processing errors — duplicates, wrong amount, a subscription billed after cancellation. The defence is your own records, and honestly the correct move is usually to refund immediately rather than defend, because a duplicate charge you argue about becomes a dispute you lose plus a fee.
Building an evidence pack that wins
The rule that decides most cases: your evidence must answer the specific reason code, not tell the story generally. A beautifully written narrative about what a good customer relationship you had is discarded if the code was non-receipt and you did not attach proof of delivery.
So respond to the code. Attach the transaction record with the authorisation and any 3D Secure result, the invoice or order confirmation, proof of delivery with the address and timestamp, the product description as it appeared at the time of sale, and any correspondence with the customer. Keep it short, cross-referenced and dated. Submit inside the window — 30 days for Visa, 45 for Mastercard — rather than on the last day, since providers sometimes need a day to pass it on.
And keep the records that make this possible: transaction logs, delivery confirmations and messages for at least 180 days, ideally longer given the 120-day dispute window can start from a delivery date.
Prevention, which is where the money is
Every experienced merchant ends up in the same place: the cheapest chargeback strategy is not winning them, it is not getting them.
Make the descriptor on the customer's statement recognisable. A trading name they will not recognise generates a genuine did-not-authorise dispute from an entirely honest customer, and it is the single most common self-inflicted chargeback.
Keep 3D Secure switched on for online sales. Confirm despatch and delivery by email with tracking. Ship only to the billing address on higher-value orders, or verify by phone. Put your phone number and returns process where a frustrated customer will find them before their bank's app — a customer who can reach you asks for a refund, and a customer who cannot asks their bank.
Refund fast where the customer is plainly right. A £420 refund costs you £420. The same £420 as a chargeback costs the fee, the ratio and the time, and you may lose anyway.
For subscriptions, send a renewal reminder before you bill and make cancellation genuinely easy — the cost of an unexpected renewal is not the refund, it is the dispute.
And know the real economics of card acceptance while you are at it, because the interchange and scheme fees are a permanent drag and the chargeback fees sit on top: what taking a payment really costs your margin is the number that should be in your pricing, alongside the small percentage you will lose to disputes each year whatever you do.
Common questions
What is the difference between a chargeback and a refund?
A refund is a payment you choose to make back to the customer. A chargeback is a forced reversal initiated by the customer's card issuer under the operating rules of Visa, Mastercard or American Express, not under UK consumer law. The practical differences matter: with a chargeback the money leaves your account before the merits are examined, the payment provider usually adds an administration fee of roughly £15 to £25, the evidence that counts is dictated by the dispute reason code, and the response deadlines are set by the card scheme — 30 days under Visa and 45 under Mastercard. Missing that deadline loses the case automatically.
How long after a sale can a customer raise a chargeback?
Typically up to 120 days from the transaction date, though the precise window depends on the card scheme and the specific reason code. For online purchases of physical goods, the 120 days generally runs from the expected delivery date rather than the order date, which can push the effective deadline several weeks further out. That is why disputes routinely arrive on transactions that were reconciled and forgotten months earlier, and why transaction records, delivery confirmations and customer correspondence should be kept for at least 180 days — you cannot defend a dispute on evidence you have already deleted.
How do I win a chargeback dispute?
Answer the specific reason code with matching evidence, and submit inside the scheme deadline. For a fraud dispute, the strongest evidence is authentication — a transaction that passed 3D Secure or chip and PIN generally shifts fraud liability to the issuer. For a non-receipt dispute, it is tracked delivery to the cardholder's billing address, with a signature on anything valuable. For not-as-described, it is the listing, photographs and specification as they appeared at the time of sale, plus a record of how you handled the return request. A general narrative about the customer relationship, unmatched to the code, loses.
Can too many chargebacks stop me taking card payments?
Yes, and it is the most serious consequence rather than the individual losses. Card schemes monitor dispute ratios and penalise merchants above their thresholds. Visa's Acquirer Monitoring Programme tightened its merchant excessive threshold to 1.5% on 1 April 2026, combining fraud reports and chargebacks into a single ratio against settled card-not-present transactions, with a fee of roughly $8 per dispute above the threshold and no warning tier; Mastercard runs its own equivalent programme. Because the measure is a percentage, a low-volume merchant can breach it with very few disputes, and persistent breaches can lead an acquirer to withdraw card acceptance.
