When a customer disputes a charge for an order directly with the card issuer Shopify opens a dispute case and a chargeback is applied to the order.
You can read in full about the process Shopify uses for Chargebacks here.
The short version of the process is:
Customer disputes charge with the card issuer.
Shopify opens a chargeback dispute and deducts the order value plus a chargeback fee from your next payout.
If you win the dispute Shopify reverse the chargeback and refund the chargeback fee on your next payout.
If you lose the dispute the chargeback stands.
How does Link My Books deal with chargebacks?
To understand how Link My Books deals with chargebacks it's easiest to follow the transaction flow.
If you win a chargeback dispute
If you win a chargeback dispute the transactions that occur look like this:
Order placed for $100. Revenue (and Shopify processing fees) added to next payout.
Chargeback opened for $100. Revenue removed from next payout and chargeback fee charged to next payout.
Chargeback won for $100. Revenue added to next payout and chargeback fee refunded to next payout.
In this case Link My Books accounts for the sale as normal, then step 2 becomes a refund and step 3 becomes a refund reversal.
Essentially the 3 steps become:
Sale
Refund
Refund reversal
If you lose a chargeback dispute
If you lose a chargeback dispute the transactions that occur look like this:
Order placed for $100. Revenue (and Shopify processing fees) added to next payout.
Chargeback opened for $100. Revenue removed from next payout and chargeback fee charged to next payout.
In this case Link My Books accounts for the sale as normal, then step 2 becomes a refund.
Essentially the 2 steps become:
Sale
Refund
The reason we do it this way is because in Shopify's eye if you lose a chargeback no further transactions occur after the refund/chargeback.
If we were to account for chargebacks as balance sheet items (in a current liability account for example) then you would end up building up a balance on the balance sheet for all the disputes you lost and they'd not be accounted for as refunds.
The way we do it means that regardless of the outcome of the dispute, the amounts will always be accurately accounted for.
Did Link My Books change the way it handled Shopify chargebacks?
Yes. Up until March 1st 2024, we had (wrongly) assumed that Shopify reversed out disputes and added separate refund transactions so we were accounting for chargebacks as balance sheet items in the Shopify Balances account.
As explained above, this resulted in chargebacks that were lost simply building up as a balance in this account.
If you're affected by this please contact Link My Books support and we can help you re-process the data and rollback and replace it. Alternatively, your accountant may be able to help you create a journal entry to clear the balance showing in your Shopify balances account and move it to your refunds account.
If you have any questions about this article or feedback on how we could make it better please reach out to the support team via the blue chat icon on the bottom right of the page or via email to [email protected].