How should we handle a chargeback?

Once you have been notified of a chargeback you will have details on the investor, the chargeback amount, and the stated reason for submitting the chargeback, you have the following four options:

Accepting the Chargeback

If you decide to accept the chargeback, you forgo any chance of retaining that investment and the shares are not paid for. The investor will be tagged in the investor table as a disputant and will be marked as unfunded. Often companies will remove this investor from the deal at this point, as they are no longer participating in the financing. Regardless of whether you have issued the shares or not, this is not the optimal option, as it will hinder the investors future ability to invest and will increase the companies chargeback rating. 

Contact the Investor and Request They Drop the Chargeback

DealMaker often sees companies contact their investor and ask why they submitted the chargeback. From the issuer’s perspective, this is the most beneficial option as it provides the opportunity to retain the investment.

If the chargeback was a mistake or if it is decided the investor will withdraw their chargeback, the investor must be directed to contact their credit card provider (usually this number is found on the back of the credit card itself). The credit card company will be able to delete the chargeback request and send confirmation.

Please let us know when the chargeback is being dropped and send us a copy of the confirmation letter. So that the chargeback funds will be redeposited back into the company’s account. 

Contact the Investor and They Do Not Drop the Chargeback (Refund)

A company may contact the investor and if the investor does not want to drop the chargeback, we see the alternative approach taken by the company to ask the investor to drop the chargeback and issue a refund to the investor separately.  This is a desirable process as the company avoids any chargeback fees and the investor avoids being flagged as high risk and having issues in future investments.

Dispute the Chargeback

If a company chooses to dispute the chargeback, they need to provide evidence that the investor directly benefited from the transaction.  Some examples of strong evidence to support a dispute would be the executed subscription agreement and evidence of share already being issued.

Options if Dispute is Unsuccessful

If the dispute is unsuccessful, the company still has the option to pursue the investor civilly as the investor did sign an agreement obligating them to pay and the company relied on that information.  If the shares have been issued, the company may independently now pursue the investors for a receivable.

It is important to note that credit card networks don’t necessarily abide by the same standards.