As the issue of Paypal chargebacks has been discussed a lot recently including the horrible situation of a large chargeback for one Forum regular, I decided to spend a bit of time looking into them to see what I can find out, what other freelance platforms do and to try and put together some advice on how to avoid them as much as possible.
Brace yourself, it’s a long one!
In this post I will be summarizing and clarifying some of the content of other websites and their terms and conditions, for ease of reading I will use “Fiverr language” such as “Seller”, “Buyer” etc. The information is for basic guidance only and of course you should decide for yourself what is right or wrong about my post and if in doubt, do your own research. Opinion and advice is my own and not necessarily the views of any company or other individuals.
Firstly, it should be noted that chargebacks are issued either through Paypal (up to 6 months after the purchase is made) or through a credit card company or bank.
The reasons that are most common are:
- Failure of seller to deliver - this is unlikely on Fiverr since the dispute system is easy to use, especially in this case. If you don’t deliver, CS will refund the buyer.
- Delivery did not match description - This is possible as a chargeback reason on Fiverr because CS does not simply refund an order if a delivery has been made. Buyers may then seek to get their money back through a chargeback.
- Stolen credit card - This can happen to any business, online or offline. A payment made with a stolen credit card will be refunded to the owner of the card almost every time.
I actually had a €5000 sale refunded when I worked in retail due to the card having been stolen. The thief had done their homework and planned it over the course of 3 months! Police said there was nothing they could do.
So, Irish police are basically powerless against a well planned thief. But what about freelance platforms, surely they must have a way of dealing with it.
I checked out the T’s & C’s of 3 of the main freelance platforms as well as their forums if they have one. The situation on all of them was almost exactly the same as Fiverr!
The T’s and C’s basically give no guarantee against chargebacks and essentially, by signing up to them you are accepting that you cannot hold the platform responsible if a chargeback occurs.
(Did you know: Some sites charge a fee in the event of a normal dispute arising! If you don’t pay the fee then you lose the dispute!)
The forums of other platforms have many posts similar to those on this forum, with complaints, horrible stories, petitions, demands etc all asking the platform to do something.
While each platform does seem to have CS that can act on behalf of the sellers in the case of chargebacks, it appears that they are seldom successful. Similarly, there have been cases on Fiverr where people have received their money although we don’t know the full story behind the scenes. No site gives guarantees and no site has a clear policy laying out how they approach the issue.
With the above in mind, I think the best way to approach the issue is to look at how we can avoid them in the first place, or at least minimize our risk. While the above is all partially digested information that I have gathered, the following is my opinion based on experience and common sense. You may have other ideas or you may believe the risk to be worth taking in some cases.
To avoid/minimize the risk of chargebacks for “Alleged bad delivery”
- The most obvious, deliver good quality work.
- Communicate with the buyer, it is more difficult to steal from someone you like
- Keep the amounts low, at least in the beginning. If the buyer has a huge project to do, ask them to first place a smaller order so that you both know that you are right for each other ie. before accepting a marriage proposal, ask them to take you to dinner first (at least)
If you are to have any chance of having a chargeback awarded in your favor then the most important thing is a track record. Being clear in communication and having a couple of successful orders with a buyer is a way to establish a track record. If it is clear that the buyer liked your quality of work initially then a chargeback is less likely to be successful - unfortunately there are still no guarantees.
To avoid/minimize the risk of chargebacks for "Stolen credit cards"
Here is the thing. A thief wants it to be simple, straight forward and as quick as possible. A credit card thief will have a maximum of one month before the card owner receives a bill and cancels the card. They will also be aware that large transactions may trigger the card company calling the owner to check it - not always, but sometimes.
- Watch out for a buyer who places multiple small orders when a big one would make sense
- Watch your total in a month with a buyer. If it seems high then do some risk assessment.
- If you sell services that do not require you to get any information about the client you should be extra vigilant about amounts. For example, it is highly unlikely that someone will buy a logo or website for their company with a stolen card, they would be found immediately!
- Be aware of buyers who are pushing for a delivery before the end of a calendar month (so the card owner does not get a bill before the delivery is finalized)
- Friendliness does not necessarily mean the person is nice! The best con men come across as lovely people. Maintain the same standards of vigilance for the nice people as the nasty people.
What to do if it happens
- Take a deep breath.
- Contact CS and ask what happened.
- Check the order and create a case for your defense. Use screenshots etc to make it clear that the work you delivered was good and what the buyer wanted.
- Follow the instructions of CS
- Try not to let it take your focus from your work. You may have lost money to one bad buyer but there is no point in allowing yourself to lose more from your good buyers!
- Check your local tax laws and with your accountant if you have one. Some countries/jurisdictions may allow you to write off a chargeback as a bad debt against your taxes.
I hope that this helps and that you manage to avoid chargebacks as much as possible. From talking to different sellers, it is clear that these are relatively rare and that the vast majority of orders do not have chargebacks. Remember that this is not limited to Fiverr, freelancing or self employment and that it can happen anywhere, to any business.
It is not a nice part but it is part of running a business, be as vigilant about your online work as you would be about locking the doors of a bricks and mortar business.