With all the promise of modern-day payment processing for law firms, one issue continues to rear its ugly head — payment chargebacks. A chargeback occurs when a payment is returned to a client’s debit or credit card due to a payment dispute. While accepting card payments from clients is a worthwhile practice for law firms, the threat of chargebacks will always be looming.
Your firm must be prepared to handle chargebacks when they occur. This includes understanding why a legal client might request a chargeback in the first place. You also need to understand the process, including how your law firm can respond and dispute the chargeback. And for legal practices using Clio Manage for billing and payment management, we explain how Clio Payments is a built-in option that works with your firm to handle the chargeback process.
What is a chargeback?
A chargeback is a debit or credit card payment that is reversed by the cardholder’s bank when the cardholder disputes the charge. The bank “charges back” the amount of the disputed payment to the merchant or service provider. In the context of payments for legal services, the money is returned to the client without the law firm’s approval. The firm then has a limited amount of time to challenge the payment dispute and fight the chargeback.
Why might a legal client request a chargeback?
For merchants and non-legal service providers, their customers file chargeback requests for several reasons. The customer may not recognize the transaction and suspect it is fraudulent. They may not be satisfied with the goods or services provided. Alternatively, the customer may simply be making a bad-faith effort to obtain goods or services free of charge.
As for legal clients, their reasons for chargeback requests are similar. It is possible they simply do not recognize your firm’s charge, which is an easily resolved dispute. However, they may simply be dissatisfied with the legal services they received or the amount charged. Areas where this often arises include prepaid consultation issue or flat fees that are paid upfront.
What happens when a chargeback is requested
Broadly speaking, the chargeback process has two main phases — (1) the client’s initiation of the chargeback and (2) the firm’s opportunity to challenge the payment reversal.
Client initiation of the chargeback
The chargeback process begins when a legal client disputes the validity of a payment they made using a credit or debit card. for Clio Manage customers, these accepted cards include American Express, Visa and Mastercard. The chargeback initiation results in the funds being returned to the client immediately. The burden is then on the law firm to prove the payment was legitimate and the chargeback should be reversed.
The issuing bank will assign a reason code to the chargeback, based on the client’s reason for disputing the charge. Each of the major card carriers has a different set of standardized reason codes. For example, the American Express reason code AO1 signifies “Charge Amount Exceeds Authorization Amount.” Each reason code comes with different types of required evidence and standards of proof.
It’s important to remember that chargebacks are administered by the debit and credit card networks, and anyone using those networks is obligated to follow their rules. For law firms using Clio Manage, this means that Clio must follow those network rules when the client requests a chargeback. Only the firm’s client can initiate a chargeback, not Clio.
Differences from eCheck returns
Another key point is that a chargeback is not the same as an eCheck return. Electronic checks (eChecks) are electronic transfers of funds between bank accounts and another form of payment facilitated by Clio Payments.
Unlike chargebacks, eCheck returns are not disputed or charged back to the firm. Instead, the funds are simply returned to the client. eCheck returns are generally done with transactions that are not authorized or have incomplete information. since eCheck reverses cannot be challenged by the firm, the firm will have to directly contact the client to resolve the issue.
Challenging the client’s chargeback
Once a client initiates a chargeback, a law firm may either accept the chargeback or fight it through the process of representation. In representation, the firm submits evidence to the “issuing bank” — the bank that issued the credit card — that the transaction was valid and the chargeback claim should be overturned. The issuing bank then reviews the evidence and makes a decision. If the decision is in favor of the law firm, the funds will be returned. Back the law firm needs to submit the strongest evidence possible in order to prevail.
For firms that are Clio Manage customers, Clio’s Payment Operations department will contact them if they receive a chargeback and offer assistance in disputing it. The time limit for the firm to respond to the chargeback will vary depending on the card network and the reason code.
The chargeback process at Clio—7 simple steps
For law firms using Clio Managethe chargeback process follows the simple steps outlined below.
1. The client contacts their bank
First, the firm’s client contacts the issuing bank to initiate a chargeback for the firm’s disputed charge. The issuing bank selects the relevant reason code based on the client’s stated reasons.
2. Clio is made aware of the chargeback
Clio is then notified of the chargeback, along with the reason code. Following the card network rules, Clio withdraws the funds from the firm’s account and returns them to the client, while also charging the firm a $15 dispute fee.
Clio also sends an automated email to the firm with the details of the chargeback. The email includes a button that will direct the firm to a page where they can begin the process of responding to the claim. In addition, Clio’s Payments Operations department will send a manual email to the firm, and call them, offering assistance in preparing responsive evidence.
3. Clio and the customer respond within a defined period
The firm has a limited amount of time to respond to the chargeback dispute – generally 7-21 days, with 10 days being typical. If the firm fails to respond, the dispute is forfeited by the firm and the chargeback is finalized. Payment Operations will send follow-up emails to the firm during this time period if no response is received. If the firm responds and states they wish to dispute the chargeback, Payment Operations will help the firm prepare evidence and advise them on what to submit.
some best practices for chargeback responses include providing clear, accurate and relevant evidence. The firm should provide proof of the client’s authorization of the charge, as well as proof the legal services charged for were actually rendered. Firms should also furnish a copy of the firm’s terms of service as they were presented to the client.
4. If the chargeback is not disputed
If the firm fails to dispute the chargeback within the defined time period, the chargeback is considered lost and the process ends. The firm also has the option of simply accepting the chargebackwhich finalizes the chargeback and leaves the funds with the client.
5. If the chargeback is disputed
If the firm disputes the chargeback within the time limit and provides supporting evidence, the issuing bank will review the firm’s response. The typical review time for the bank is 30 days.
The firm may always contact the client to attempt to understand their complaint. The firm may be able to resolve the dispute and ask the client to withdraw the chargeback. However, client withdrawal of chargebacks is relatively rare.
6. The issuing bank then makes a decision
The issuing bank will then make a decision on the dispute, which will fall into one of these three categories:
Firm wins: If the bank rules in favor of the firm, then the money is returned to the firm and the process ends. Clio will also return the $15 dispute fee.
Client wins: If the bank rules in favor of the client, the chargeback stands and no money is returned to the firm.
Partial refund: The bank could also partially refund the firm’s client, resulting in part of the payment being debited from the firm’s account as a partial chargeback.
7. If the chargeback is lost, Clio can arbitrate the chargeback with the network
If the firm loses the chargeback, it has the option of proceeding to arbitration with the card network, where the network will review the case and issue a judgment. Due to the time and expense associated with arbitration, it is generally reserved for large amounts where the firm has a high probability of winning.
Final notes on chargebacks
Law firms can be prepared for client chargebacks by knowing how to effectively respond. If your firm is a Clio Manage customer, Clio will help you respond to the dispute and provide the best evidence possible. Chargebacks may be a hassle, but they’re a solvable challenge and should not dissuade your firm from accepting debit and credit card payments.