Wednesday, February 28, 2024

The 4 Most Common Hotel Chargebacks (And How To Avoid Them)

Unfortunately, chargebacks, also known as credit card disputes, are common in the hospitality industry. Chargebacks are time-consuming, costly, and oftentimes stressful to resolve. However, they can also be avoided, and, with the right systems in place, easier to manage. 

Below are the 4 most common types of chargebacks hotels face and how you can mitigate chargeback claims.

1. Credit card not processed

A “credit card not processed” chargeback happens when a guest was supposed to be issued a refund that they haven’t received. 

There are two common reasons for this. The first is that their refund request was forgotten. Or, their refund request doesn’t fall in line with your cancellation/refund policy. 

To dispute the chargeback, it’s recommended that you write a rebuttal letter explaining why the guest shouldn’t receive a refund and send it with a copy of your no-show, refund or cancellation policy. Including these policies in the reservation confirmation email is a good way to prove that your cancellation / no-show policy was clearly disclosed to the guest. It will support your claim and help win the dispute. 

By creating Standard Operating Procedures (SOPs) for handling refunds, you and your staff will be less likely to miss issuing a refund that’s due and could reduce this type of chargeback.

2. Fraud

There are two main types of fraud when it comes to chargebacks: credit card fraud and friendly fraud.

Credit card fraud happens when a payment goes through without the card holder’s consent, usually because the card has been stolen. Friendly fraud occurs when the cardholder requests a chargeback after they’ve authorized the payment. It often happens when the guest doesn’t recognize the transaction. For example, your property may charge a 50% deposit one week before the check in date, but the guest booked the reservation months in advance and forgot the policy so they flagged the charge as fraudulent.

An effective way to combat fraud is to collect cardholder information, including ZIP code and CVV (the 3-digit code on the back of most major credit cards or, for Amex, the 4 digit code on the front of the card). This data helps you match up the guest at check-in with the information you have stored in your system. Requesting a photo ID also helps ensure the guest is who they say they are.

For extra proof that the guest authorized the transaction, you can provide supporting information such as a signed registration card, a card imprint with the guest’s signature and the guest folio. 

Another way to reduce these types of chargebacks is by running regular hotel reports, especially payment reconciliation reports and payment account balance reports. These help you keep track of the transactions taking place at your property. An integrated PMS will help you manage all your payments, guest data, reports, and more, all in one place.

Using a good credit card processing system that has practices in place to protect you and your guests from fraud and deal with fraud quickly will really help.

3. Services not rendered

“Services not rendered” chargebacks happen when a guest is charged by a hotel but they claim they haven’t actually received service. 

If the cardholder completed the stay, you’ll need to provide supporting documents as proof. A signed registration card or the guest folio should be sufficient.

If the cardholder checked in at your hotel but didn’t complete their full stay, you can write a rebuttal letter to explain why a refund isn’t due. The best practice would be to include your cancellation, refund, or no-show policies, and any other supporting documents.

Some hotel payment processors have a dedicated team on hand 24/7 to support you with dispute management issues. We highly recommend choosing a payment processor that offers dispute management services to save you on time and chargeback fees. 

4. Not as described/product unacceptable

A not as described/product unacceptable chargeback usually occurs when the guest doesn’t think the room or service description matches their experience, or because their stay didn’t meet their expectations.

If you believe that no refund is due, the best thing you can do is provide a rebuttal letter addressing all of the cardholder’s claims regarding the issue(s) with their stay. In cases where the guest may have a valid claim, you can prevent this type of chargeback by offering a refund before any chargeback is filed. 

Once a chargeback has been issued, you’re not able to offer a refund. The best way to mitigate this type of chargeback is to check in with guests throughout their stay to gauge their satisfaction. You can also ask guests at check out how their stay was and address any issues then. Often you can come to an agreement with a guest for a refund or partial refund, which helps to prevent chargeback disputes later. 

Chargebacks are sometimes inevitable, but by applying the tips mentioned above, you can reduce the time and headaches you spend on chargebacks, and save money.

Cloudbeds is the platform that powers hospitality, enabling tens of thousands of lodging businesses in more than 150 countries worldwide to grow and thrive. The award-winning Cloudbeds Hospitality Platform brings together technology solutions to increase revenue, delight guests, and streamline operations into a single unified system, enhanced by a curated marketplace of third-party integrations. Founded in 2012, Cloudbeds was named No. 1 PMS, No. 1 Hotel Management System, and No. 1 Guest Messaging Software by Hotel Tech Report in 2023 and was recognized as a major player in the 2022 IDC Marketscape Report.

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