Top 11 Best Practices For Hotels To Avoid Chargebacks Disputes

What Is Hotel Chargeback?  

A chargeback is a reversal of a credit card transaction, initiated by the cardholder’s issuing bank, which results in the return of funds to the consumer.  

Although this mechanism was designed to protect consumers from unauthorized or fraudulent charges, in the hospitality industry, chargebacks can occur for various reasons beyond outright fraud.  

For example, a guest might dispute a charge due to dissatisfaction with services, billing errors, or even misunderstandings about hotel policies.  

But still, hoteliers need to know that while chargebacks serve as a consumer protection tool, they can also be misused by “friendly fraud,” where consumers dispute legitimate charges to obtain refunds while retaining the services received.  

How Chargebacks Hurt Hotel Businesses

Chargebacks may seem like just another of the costs of doing business, but they can have far-reaching consequences for hotels. Beyond the financial loss of refunded transactions, chargebacks can negatively impact operations, reputation, and relationships with payment processors.

Financial Losses  

Chargebacks don’t just mean losing the money from a disputed transaction, hotels also face additional costs, including:

• Chargeback fees: Payment processors charge hotels fees ranging from $20 to $100 per chargeback, no matter if the dispute is won or lost.

• Increased processing costs: More chargebacks may result in higher credit card processing fees.

• Product/service loss: Hotels provide a service that can’t be “returned,” making chargebacks even more damaging.

A 2016 study by LexisNexisi revealed that chargeback fraud costs merchants $2.40 for every $1 lost, accounting for product loss, banking fines, penalties, and administrative costs.

Operational Strain

Managing chargeback disputes requires a lot of time and resources. The process requires gathering all the documentation, talking with banks, and in some cases, even requires arbitration. This takes a lot of attention from the main business activities and can affect daily operations and revenue, some reports estimates that the average cost of handling a chargeback is around $25 to $30 per caseii.

Reputation Damage  

A lot of chargebacks can show issues in service quality or billing practices. And this perception can affect the trust among guests and partners, which may lead to decreased bookings and revenue. Frequent disputes can lead to:

• Negative online reviews: Frustrated guests may leave bad reviews, affecting a hotel’s online reputation.

• Loss of repeat business: Guests who experience billing issues may not return.

For more insights on improving guest satisfaction, which can significantly reduce disputes, check out our post How to Measure Guest Satisfaction in the Hospitality Industry 2023.

Risk of Losing Merchant Accounts  

Payment processors monitor chargeback ratios closely. And if a hotel’s chargeback rate exceeds 1% of total transactions, the business may be classified as “high-risk,” which can lead to:

• Higher processing fees

• Stricter contract terms

• And even potential termination of the merchant account

And of course, without a functioning payment processor, hotels would not be able to accept credit card payments, which could severely impact everything from payments to guest satisfaction.

What Is the Chargeback Fee?

A chargeback fee is an additional cost required by the acquiring bank or payment processor when a customer disputes a transaction. These fees are meant to cover the administrative costs of handling the dispute.

How Much Do Chargeback Fees Cost?

The exact chargeback fee changes based on the hotel’s payment processor and the hotel risk profile, but normally is about:

• Low-risk merchants: $20 – $50 per chargeback

• High-risk merchants: $50 – $100 per chargeback

If chargeback rates are too high, some payment processors may apply even more extreme penalties or may reserve holdbacks, reducing a hotel’s available cash flow.

When Are Chargeback Fees Charged?

Hotels are charged a fee at the same moment when a chargeback is initiated, even if they later win the dispute. This means hotels lose money upfront regardless of the outcome.

Can Hotels Recover Chargeback Fees?

No. Even if a hotel successfully disputes a chargeback and the money is returned, the chargeback fee is still non-refundable.

4 Common Types of Chargebacks

Understanding the different categories of chargebacks can help hotels identify patterns and implement better policies to prevent them.

1. Criminal Fraud Chargebacks

These happen when a stolen credit card is used to make a booking. The real cardholder will dispute the transaction and the hotel is forced to refund the amount.

How Can Your Hotel Prevent It:

• Use EMV chip readers for in-person transactions.

• Require CVC codes and AVS (Address Verification Service) for online bookings.

• Implement fraud detection tools to find suspicious transactions.

2. Friendly Fraud Chargebacks

This type of chargeback happens when a guest disputes a charge they did authorized.

How Can Your Hotel Prevent It:

• Provide clear, itemized receipts at checkout.

• Send automated email confirmations with billing details.

• Ensure all the policies on cancellations, deposits, and incidental holds are transparent and easily accessible.

3. Service-Related Chargebacks

Guests may dispute charges if they claim the service was not good or the hotel was not clear about the amenities.

How Can Your Hotel Prevent It:

• Maintain accurate online descriptions and photos of rooms and services.

• Make sure front desk staff document and resolve guest complaints before they rise.

• Offer a satisfaction guarantee policy to address concerns before a guest contacts their bank.

A 2022 study by Ethocaiii found that over 30% of chargebacks in the hospitality industry are due to service-related disputes, so enhancing the service will reduce the chargebacks in your hotel.

4. Technical Chargebacks, or Processing Errors

These chargebacks occur due to technical issues, like:

• Double charges.

• Incorrect amounts charged.

• Failed promised, yet nor processed refunds.

How Can Your Hotel Prevent It:

• Regularly audit payment processing systems for errors.

• Train staff to double-check transactions before charging.

• Ensure refunds are processed promptly and send confirmation emails to guests.

In the next section, we’ll explore best practices for hotels to avoid chargebacks.

Top 11 Best Practices to Reduce Hotel Chargeback Disputes

Proactive measures will prevent chargeback disputes before they happen, try implementing the following best practices, so your hotel can reduce chargebacks, minimize financial losses, and protect its reputation.

1. Clearly Communicate Hotel Policies

Not enough transparency is one of the top reasons guests dispute charges. Be sure to clearly state policies on cancellations, no-shows, deposits, and incidental charges:

• Display policies clearly on the hotel’s website and booking confirmation emails.

• Require guests to accept key policies before completing a booking.

• Have front desk staff verbally confirm important policies at check-in.

Tip: Try to include a digital signature or checkbox agreement during the online booking process to prove guest consent.

2. Use Detailed Billing Descriptions

Many guests dispute charges because they don’t recognize them on their bank statements. Try to be very descriptive in the charges, use:

• “Hotel Name: Room & Services [Date]”

• “Hotel Name: Restaurant & Amenities [Date]”

Adding specific details makes it easier for guests to identify legitimate charges.

3. Implement Very Strong Payment Verification Measures

Prevent fraudulent transactions by ensuring secure payment processing:

• Use Address Verification Service (AVS) to confirm the cardholder’s billing address.

• Require CVV codes for all credit card payments.

• Enable 3D Secure authentication to add extra fraud protection.

• Use EMV chip readers for in-person transactions.

4. Obtain Signed Agreements and Receipts

A signed agreement acts as evidence in chargeback disputes. Best practices include:

• Getting a digital or physical signature at check-in confirming the stay.

• Make your guests sign for additional charges like room service or parking.

• Sending email confirmations and final invoices upon checkout.

Tip: Store digital copies of receipts for at least 120 days after checkout, because chargeback disputes can occur later.

5. Process Refunds Promptly and Provide Proof

Delayed refunds often lead guests to file chargebacks instead of waiting. To prevent this:

• Process refunds immediately upon approval.

• Send a confirmation email with refund details.

• Keep a record of refund transactions in case of disputes.

6. Monitor and Reduce Incidental Charge Disputes

Incidental charges like minibar usage, parking, or damage fees are frequent sources of chargebacks. Do this to avoid disputes:

• Pre-authorizing a security deposit at check-in.

• Providing an itemized receipt at checkout.

• Notifying guests via email before charging them for post-checkout damages.

Tip: When charging for damages, include photos and detailed documentation as proof.

7. Ensure Customer Support Is Easily Accessible

Many guests dispute charges because they couldn’t resolve issues with the hotel directly. To solve this, you can try:

• Providing 24/7 customer service for billing inquiries.

• Responding to refund or dispute requests within 24-48 hours.

• Offering multiple contact options (phone, email, chat) to resolve concerns before they escalate.

Fact: According to a chargeback guideiv, inadequate customer service accounts for 10% to 30% of all chargebacks.  

8. Use Fraud Detection Tools to Identify Risky Transactions

Hotels should invest in fraud prevention tools that flag high-risk bookings, like:

• Unusually high-value reservations.

• Lots of bookings made with the same credit card in a short time.

• Mismatch between billing and IP address location.

9. Train Staff on Chargeback Prevention

Ensure all employees understand:

• How to correctly process payments.

• How to document and verify guest charges.

• How to handle guest disputes.

10. Keep OTA and Direct Booking Terms Consistent

Disputes often occur when guests expect one policy but encounter another. Ensure that cancellation, refund, and deposit policies are the same across:

• Your hotel website

• Online travel agencies (OTAs) like Expedia and Booking.com

• Third-party booking platforms

Also, to better understand the evolving role of OTAs and how to stay ahead, see our article on Future of OTAs in the Hospitality Industry: Trends & Predictions.

11. Use a Payment Solution With Chargeback Protection

A hotel payment gateway like roommaster Payments can help reduce chargebacks with:

• Secure credit card processing to prevent fraud.

• Automated guest receipts and confirmations to minimize disputes.

By implementing these best practices for hotels to avoid chargebacks, hoteliers can protect their business from financial loss, maintain a positive guest experience, and ensure long-term profitability.

How to Win Unfair Chargeback Claims

Chargeback disputes are not always fair. Sometimes, hotels face chargebacks due to friendly fraud. To fight these claims successfully, hotels need a strong strategy and proper documentation.

1. Gather Strong Evidence

To be able to fight an unfair chargeback, you need to present compelling proof that the charge was legitimate. Essential documents may include:

• A signed registration form or electronic check-in record

• A copy of the cancellation and refund policy acknowledged by the guest

• Transaction logs and IP address records for online bookings

• Proof of guest identity verification, like a scanned ID or card authorization form

2. Respond Quickly

Chargebacks come with strict deadlines, generally 7 to 21 days, depending on the card issuer. Delays in responding can result in automatic losses, even if your case is valid.  

3. Use Clear Billing Descriptions

Confusing billing descriptors are one of the most common reasons for accidental chargebacks. Make sure your hotel’s name appears clearly on credit card statements.  

4. Work with Your Payment Processor

Your payment processor can be a valuable ally in fighting chargebacks, always work with them.

How roommaster Can Help

roommaster provides powerful solutions to help hotels minimize chargebacks and manage disputes efficiently:

• Secure Payment Processing: roommaster’s hotel payment gateway ensures secure transactions with PCI-compliant processing, reducing the risk of fraudulent chargebacks.

• Seamless Booking & Payment Records: roommaster stores guest details, payment history, and signed agreements, making it easy to present solid evidence against unfair chargeback claims.

• Integrated Digital Signatures: Capture guest signatures electronically during check-in and check-out, adding another layer of proof for disputed transactions.

With roommaster’s technology, hotels can protect their revenue, reduce disputes, and streamline chargeback management, ensuring a smoother payment experience for both guests and staff.

Key Takeaways

• Chargebacks hurt hotels by cutting into revenue, increasing operational costs, and damaging relationships with payment processors.

• The most common causes of chargebacks include fraud, misunderstandings, poor customer service, and processing errors.

• Preventative measures like clear billing descriptors, digital receipts, fraud detection tools can significantly reduce disputes.

• Responding quickly and providing strong evidence is crucial to winning unfair chargeback claims.

• roommaster PMS helps hotels combat chargebacks with secure payment processing and seamless record-keeping.

For a holistic approach to hotel management that ties in these strategies, see our guide 6 Steps to Successful Hotel Management.

FAQs About Hotel Chargebacks

What is a chargeback at a hotel?

A chargeback at a hotel is the process where a guest disputes a credit card transaction. This dispute prompts the card issuer to reverse the transaction, effectively refunding the guest while placing the financial burden (and additional fees) on the hotel.

What does a chargeback do?

A chargeback reverses the payment made for a hotel service. This means the funds are withdrawn from the hotel’s account and returned to the guest, often along with extra fees and penalties. It can impact the hotel’s cash flow, reputation, and may signal issues with billing practices or guest satisfaction.

What is the biggest reason hotels receive chargebacks?

The most common reason is friendly fraud, where a guest disputes a legitimate charge, either because they forgot about the transaction or to avoid payment. Other causes include unauthorized transactions, processing errors, and unsatisfactory guest experiences.

How long does a hotel have to respond to a chargeback dispute?

The response window varies by payment network, but generally hotels have 7 to 21 days to submit evidence and contest a chargeback. That’s why it’s essential to act quickly.

How can hotels prevent friendly fraud?

• Use digital contracts and capture electronic signatures at check-in.

• Clearly state cancellation and refund policies.

• Send email reminders with booking details before check-in.

• Use fraud detection tools to flag high-risk transactions.

Does roommaster help prevent chargebacks?

Yes! roommaster provides:

• Secure payment processing to prevent fraudulent transactions  

• Digital records & guest signatures to support dispute resolution

What is a chargeback vs. a refund?

• Refund: A refund is initiated by the hotel (or at the guest’s request) as a voluntary return of funds, often provided to resolve a service issue amicably.

• Chargeback: A chargeback is initiated by the guest’s bank after the guest disputes a charge. Unlike refunds, chargebacks involve an investigation by the payment processor and can include additional fees, potentially affecting the hotel’s reputation and revenue.

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