Refund or chargeback: what is the difference?
A refund is money you choose to send back to a customer. A chargeback happens when the customer asks their card issuer to reverse the payment instead. With a chargeback you usually lose the sale amount, pay a chargeback fee to your payment processor, and spend time on the dispute, even if you win it in the end.
What goes into the true cost of a chargeback
- The transaction amount, returned to the cardholder.
- The chargeback fee charged by your processor, which is often several times higher than a normal transaction fee.
- Processing fees on the original sale, which are usually not returned.
- Lost goods or shipping costs if the product has already been delivered.
- Staff time spent collecting evidence and responding to the dispute.
- Your dispute ratio: card networks monitor the share of transactions that turn into disputes, and merchants above their thresholds can be placed in monitoring programs with extra fines or lose the ability to accept cards.
How to use the calculator
- Enter the order value and your payment processing fee.
- Enter the chargeback fee your processor charges.
- Add the cost of goods, shipping and the time you would spend fighting the dispute.
- Compare the result for refunding, accepting the chargeback, and fighting it.
When refunding is usually cheaper
If a customer contacts you first and the claim looks genuine, a refund is almost always cheaper than a chargeback: you avoid the chargeback fee and keep your dispute ratio low. Fighting a chargeback can make sense for high-value orders where you have strong evidence, such as delivery confirmation, usage logs or signed terms.
Ways to prevent chargebacks
- Use a clear billing descriptor so customers recognise the charge.
- Make refunds and cancellations easy to request.
- Send order and shipping confirmations with tracking.
- Check the card country against the customer's location with the BIN checker on high-risk orders.
