'Friendly fraud' is on the rise, and small business owners may bear the brunt of the impact

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'Friendly fraud' is on the rise. Here's how small business owners can protect themselves.

from $20 to $100, which is in addition to the cost of your product or service. Plus, businesses are on the hook for credit card processing fees between 1% and 4%. The costs add up quickly, which makes it tough on small business owners who already face thin profit margins.All chargebacks go through the customer's card issuer first, but it's the card networks that set up the rules for disputes, according to president and CEO of, Cyndie Martini.

Small business owners who find themselves in the midst of a dispute should first review both the network and the issuer's chargeback policies, says Martini. For example, some issuers won't bother to investigate the claim if it costs more to fix the problem than to simply refund the customer's money.But when you're not covered by your issuer agreements, "the easiest way to avoid the chargeback fee is for merchants to work directly with the cardholder to resolve the dispute." By the time the dispute reaches the card network, the business owner is more likely to see a fee.

Mercator Advising Group also suggests that businesses should consider updating their refund policies to avoid chargeback fees. While it may seem counter-intuitive to relax your exchange policies during an economic recession, accepting returns is usually less costly than losing chargeback disputes. To help improve customer satisfaction, make sure your website provides thorough product information and high-quality photos. Streamline the online shopping cart, checkout and receipt delivery so there's no confusion as to what was charged.

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