Student Loan Doc Prep Companies: Threshold for Chargebacks

What is the threshold for chargebacks?

Chargeback rates are increasing at alarming rates and high-risk merchants like student loan doc prep companies are some of the most common victims of what is now mostly known as “friendly fraud.” But more than the potential monetary losses, a chargeback could actually hurt a business in its core, especially when it comes to credibility.

With chargebacks happening often than they should be, the big question is: when is it actually too much for student loan doc preppers? Here’s everything you need to learn:

What’s The Industry-Wide Maximum?

Whether you’re a student loan doc prep company or any other business, the industry standard maximum chargeback rate is 1% or one in every 100 successful orders. This means that you can’t go beyond that one chargeback each month, especially if you only have few transactions.

That 1% is already the absolute chargeback threshold for all direct merchant accounts and anything beyond that will already raise serious red flags to banks and merchant partners. It will also tag you as a high-risk merchant.

What’s a Chargeback Ratio?

A chargeback-to-transaction ratio is the equation used to calculate your chargeback rate. To come up with the number, you have to divide your total chargebacks by the number of transactions within that month.

So if you had 10 chargebacks issued in a month but you also had 1,000 transactions on the same month or the next, it makes your chargeback rate at .01%.

Visa usually calculates the threshold for chargebacks divided by the total transactions from the same month while MasterCard calculates one month divided by the next month. It’s very important to know the rules of each merchant processor when it comes to chargebacks so you can easily make calculations and comply to their requirements.

What Are The Other Factors for Chargeback Rates?

Although 1% is the standard maximum threshold for chargeback rates in all types of businesses, it isn’t the only factor considered by banks and merchant processors when examining your business. In fact, what could be a higher chargeback ratio for you may just be normal for another business.

Factors like the nature of the business, the risks involved with running that business and the types of clients that the business transacts with are considered by banks and merchant processors when reviewing an account with high chargeback rates.

For instance, if you’re a student loan doc prep company, you’re at a higher risk for chargebacks because you’re dealing with students who might not have the money to fully pay you for your services and would resort to chargebacks just to defraud you.

What Are the Ways to Decrease Chargeback Ratios?

Finally, there’s nothing more important than having ironclad preventive measures to not only decrease chargeback ratios but also completely eliminate them.

The first step is to find a payment processor with strong security methods like AVS and CVV verifications. It’s also very important to review your refunds and billing policy to make sure they protect you as much as they do your consumers.

Of course, you can’t put too much emphasis on the importance of supporting your claims with strong credibility. It’s simple: when consumers are happy with your service, they won’t even think about filing a chargeback unless they have bad intentions, which you can also prevent by having proper security measures in place.

After learning the threshold for chargebacks, be sure to call one of our merchant account pros: (877) 441-6801.