What is a Chargeback? How to Avoid Chargebacks in Your Restaurant

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Every restaurateur wants to avoid chargebacks. Learn what a chargeback is, how they impact restaurant operations, and how to prevent chargebacks from happening.

Let’s face it, no restaurateur likes dealing with chargebacks.

On one hand, you’ve likely got a case of fraud or a disgruntled guest, while on the other, you’ve lost money that was already in the bank. For a new restaurant, incurring those first few chargebacks can be a shock to the system.

There are a handful of best practices worth adopting to avoid chargebacks altogether. Before we go there, let’s take a step back and nail the basic questions that many restaurants have:

  • What is a chargeback?

  • Why do chargebacks exist?

  • And finally, how to avoid chargebacks?

Let’s dig in.

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What is a Chargeback?

A chargeback is initiated when a cardholder disputes a transaction, resulting in a forced reversal of the original payment.

Said another way, when a guest denies a charge that appears in their credit card statement, the charge is reversed and funds can be withdrawn from a restaurant and returned to a cardholder.

Following a cardholder’s chargeback initiation, a restaurant has the opportunity to prove that the original transaction was legitimate and the cardholder’s claim is unfounded. 

Fighting Chargebacks

Fighting chargebacks has become easier for restaurants who employ a point of sale system that uses  digital receipts, which are often the evidence required to attempt to disprove a chargeback claim. Although digital receipts prevent sifting through boxes of paper receipts, spending any time fighting chargebacks can still be a headache – especially when the chargeback isn’t legitimate.

Chargebacks are added costs that all merchants, in every industry, will incur as a result of accepting credit cards. Rules and government regulations heavily favor cardholders in chargeback claims, and generally-speaking, a restaurant is treated as guilty until proven innocent.

Why Do Chargebacks Exist?

The Fair Credit Billing Act affords consumers the right to chargeback "to protect the consumer against inaccurate and unfair credit billing and credit card practices."

Examples of “unfair billing practices” range from incorrect amounts charged, to charges made via a stolen card, to charges made for goods or services not delivered as agreed. The regulations are designed to protect cardholders from fraud / theft while incentivizing merchants to provide quality products, helpful customer service, and timely refunds as needed.

This is where it gets tricky for restaurateurs. Serving a meal at a restaurant involves both a good and a service: the food and the experience. If a diner’s expectations are not met (say if a burger isn’t cooked to a guest’s definition of “medium”), that guest has the right to claim a chargeback and the onus to prove otherwise is the responsibility of the restaurant. In fact, 4% of chargebacks are because the final product did not match the description.

Although a daunting example, these situations are very rare for restaurants, which generally have extremely low chargeback rates (% chargeback rate = # of chargebacks/total # transactions) compared to other industries.


Beyond low chargeback rates, there are a few basic practices worth implementing to avoid chargebacks.

How to Avoid Chargebacks

Unless your restaurant only accepts cash, it is nearly impossible to avoid all chargebacks in your restaurant, but there are ways to keep them at bay.

Here are six suggestions on ways to avoid chargebacks in your restaurant.

1) Address guest dissatisfaction immediately.

4% of chargebacks occur because the product did not meet a guest's expectations.

If you notice an unhappy guest or receive a complaint, open up the lines of communication and try to quickly resolve the issue before a diner gets to their card statement to deny a transaction. If you think the guest would win a chargeback, offer a refund or a partial refund. In either scenario, a refund is cheaper than a chargeback.

2) Exchange contact info and encourage follow up.

Make sure your restaurant’s contact info is easily available on a receipt so that a guest may reach out if they have a complaint. This will afford you the opportunity to address the concerns before getting a chargeback

If you have comment cards, make sure you are collecting guest contact information so you can reach out and respond directly to any negative feedback.

3) Track patterns of dissatisfaction and solve their root causes.

Always be watching out for common negative comments/reactions and solve any rising trends as they appear. In response to the first two tactics, see if there's a common thread in customer dissatisfaction and make the proper changes.

For example, maybe your chargebacks are consistently related to overcooked food complaints. If so, talk to your BOH crew and ask them to turn the heat down a notch on the grill.

4) Follow the guidelines established by the major card brands.

Every major credit card brand has a collection of best practices for all merchants to follow. Learn more below:

5) Set clear expectations for your guests.

Clearly describe menu items and preparation to avoid a misunderstanding on your guests' expectations. Setting the right expectations is key to ensuring a positive guest experience. Whether through the clear menu descriptors, pictures of the final product, or proper server training, educating a diner on what they can expect will help prevent dissatisfying surprises and chargebacks.

6) Stay up to date on fraud prevention technology.

30% of chargeback instances involve fraudulent credit card use.

Best practices dictate you should run all your cards through a restaurant EMV reader processor instead of magstripe – not just those over a certain ticket size. This is effective at avoiding chargebacks from fraudulent credit card use.

When EMV was first introduced, the readers were bulky and slow. This caused some merchants to opt out of using them. They chose to take on the occasional chargeback (and fees that are associated with them) in order to quickly serve more guests. 

Now, four years after the EMV Liability Shift took place, technology has advanced drastically. Transactions that used to take upwards of 15 seconds now take less than 3. Meaning that you can now process EMV transactions at almost the same rate as a card swipe while simultaneously protecting yourself from fraudulent purchases.

Keep Calm and Charge On

When you take pride in offering outstanding service and delicious food, receiving a chargeback can be frustrating and seemingly unfair - remember that incurring chargebacks are a necessary requirement of accepting credit cards; no one is immune. Employing a few best practices can go a long way in preventing chargebacks.

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DISCLAIMER: This information is provided for general informational purposes only, and publication does not constitute an endorsement. Toast does not warrant the accuracy or completeness of any information, text, graphics, links, or other items contained within this content. Toast does not guarantee you will achieve any specific results if you follow any advice herein. It may be advisable for you to consult with a professional such as a lawyer, accountant, or business advisor for advice specific to your situation.