Tips for merchants on how to combat charge-offs

Tips for merchants on how to combat charge-offs

There are several ways you can dramatically limit the number of credit card charge-offs your business encounters. Credit card charge-offs happen when a purchase is deemed uncollectible, which can put a big dent in your enterprise's merchant account. This year, charge-offs have been reported on more than 6 percent of all purchases in the credit card process, the highest charge-offs rate since the recession of the early 1980s, according to Moody's Financial Services.

How can you and your business keep charge-offs to a minimum? Here are a few tips:

• Educate your customers about charge-offs with billing or promotional information. Customers should know that credit card charge-offs can virtually ruin their credit rating for a period of seven years.
• Understand that "charge-offs" can be a deceptive term. This may be difficult for a business owner to understand, but some customers see "charge-offs" on their bills and believe that the payment obligation has simply been forgiven and canceled. Customers need to be informed that charge-offs are anything but a write-off.
• Ask if your merchant account provider can determine which customer accounts are most at risk of credit card charge-offs. Focus on those accounts by establishing credit dollar limits in advance.
• Be suspicious if orders seem exceedingly large.
• Show extra diligence in evaluating prospective customers who are overseas. Consider asking them to fax you copies of credit card billing statements from their home banks. If you don't hear back, you can figure that you just dodged some charge-offs scams.
• As soon as an account is delinquent, explore the customer's credit history.
• Collection phone calls produce results.
• This may sound old-fashioned, but you always can call person-to-person to verify orders. Even if you don't detect any fraud or potential for charge-offs, the customer may be impressed by your personal attention and feel motivated to do more business with you in the future.

Published: May 26,2023