Dealing with third-party delivery chargebacks  

The food delivery market is booming, with the industry poised to hit a valuation of $90.3 billion globally by 2030 according to industry data. That growth can equal hefty increases in revenue for restaurants eager to add or grow expand revenue streams, but there are potential pitfalls that may derail profits. One of the biggest financial complications? Third-party delivery chargebacks. 

These chargebacks occur when a customer receives food through a third-party delivery service and then disputes their payment through their credit card company or bank. It’s then up to the restaurant to supply evidence that the charge is legitimate and that the customer has no grounds for a refund. Shouldering this burden of proof can be both costly and time-consuming, leaving restaurants responsible for the cost of food, delivery fees, and the refunded money. 

Here's a deeper look at the complex world of third-party delivery chargebacks and what restaurant owners and operators can do to mitigate those losses. 

Types of  third-party delivery chargebacks 

There are three main types of chargebacks linked to third-party food delivery services.  

• Merchant errors are legitimate operational errors made by a restaurant that leads to an incorrect charge. For instance, the customer was charged twice for a single order. 

• Friendly fraud applies to chargebacks made because of a reasonable complaint but that should’ve been addressed with the restaurant or delivery service provider (DSP), not via a chargeback. An example of this would be food arriving cold or getting charged for crinkle fries that weren’t delivered. 

• Criminal fraud occurs when a customer initiates a chargeback simply to get their meal for free (with no actual complaint or underlying problem in play). This could also apply to credit card theft, such as an individual using a stolen credit card number to order food for themselves.  

While some customers may be trying to game the system, not all chargebacks are malicious in nature. Chargebacks should be limited to actual credit card charge mistakes — those instances when the computer glitches or human error leads to a flawed transaction. But customers who are angry about substandard food or late deliveries may attempt a chargeback out of frustration. Others might not know that chargebacks aren’t the best way to handle a restaurant’s or DSP’s blunder.

How should restaurants deal with chargebacks? 

Whether porch pirates stole someone’s pasta dinner or a customer is disappointed in the quality of their chef salad, it’s ultimately up to the restaurant to mitigate the damage and protect both their assets and the merchant-consumer relationship. 

Make it easy to get a refund vs. a chargeback 

Some customers may not realize that refunds and chargebacks aren’t the same thing. An unhappy diner who contacts a restaurant about a poor experience can get a refund directly from the merchant. Typically, that only costs the restaurant the refunded money and perhaps a small transaction fee. 

Chargebacks, on the other hand, can lead to excessive fees from the bank or credit card processor. Excessive chargebacks can incur further penalties or even lead to account closures.  

Restaurants should include language on its website and delivery profiles giving consumers contact information for concerns and refund requests. Making this process easy to understand and execute may help guide consumers in the right direction. 

Work to prevent credit card fraud 

Fraud protection happens largely at the point of purchase. That means it’s up to the third-party delivery service and their processors to detect issues before or as they happen. But you can work to limit your liability by reviewing your contracts with those providers. See how they assess and prevent fraud and who is responsible if a fraudulent transaction does occur. 

Maintain a solid paper trail 

Since credit card companies and banks look to merchants to disprove chargeback attempts, it’s crucial you keep track of orders and related evidence of delivery. 

• Contract with delivery services that require their drivers to take pictures of deliveries during drop-off. 

• Keep records of orders, including itemized receipts, until chargeback windows are closed. 

• Insist on customer signatures or alternative acceptance documentation that proves successful delivery. 

• Use your advertised business name on all paperwork — including financial statements — to reduce the possibility of confusion. Customers who see a charge from a “Pizza LLC” may not recognize that charge as their delivery cost for Luigi’s Pizza & Pasta. 

Train your staff 

While customers shouldn’t be pursuing chargebacks for mistakes in order quality or delayed deliveries, that doesn’t mean they won’t. You may be able to prevent some complaints and chargebacks by changing how you do business on a day-to-day basis. 

• Always provide excellent customer service. A friendly voice on the telephone, a swift apology for overcooked fries, and an offer of a free appetizer to make up for untoasted garlic bread can smooth over issues quickly. If a staff member argues with an already upset customer over the phone, your opportunity for an easy resolution all but disappears. 

• Have a food prep/delivery timeline. Your team should know exactly how long they have to make and package food for delivery. This includes a timeline breakdown by task. For example, the time from receiving an order to beginning the actual cook should be less than 5 minutes. 

• Use feedback to improve training/partnerships. Look for patterns in customer feedback to help pinpoint areas in need of improvement. For instance, long delivery times could be related to extended meal prep times, or it could be that your third-party delivery service is falling short. 

• Review your menu descriptions. Every item you offer for sale should be named and described accurately and in appropriate detail. “Chowder” is open to interpretation, but “Clam Chowder: A delicious cream-based soup with clams, bacon, carrots, celery, and cracked pepper” is much more definitive. When customers know exactly what to expect, it’s harder for them to be disappointed or unpleasantly surprised. 

• Provide itemized receipts. Receipts that include charges for each item plus extra fees for delivery, taxes, service charges, etc. offer transparency and lots of information. This could help customers understand what they paid for and remind them of certain charges they might otherwise dispute. 

• Monitor online reviews. It’s not uncommon for customers to skip direct communication with your restaurant and instead express dissatisfaction via an online review. Monitor popular review sites and your profiles on third-party delivery apps and contact customers who are unhappy. You may be able to address their concerns before they pursue a chargeback. 

Check up on your delivery partners 

Third-party delivery services like DoorDash and Uber Eats can help restaurants exponentially expand their audiences and service areas. But for the relationship to be profitable and sustainable, restaurant operators need to know how they work. 

Does your delivery partner promise certain delivery times based on your profile, and have you kept it current? Do you seem to have repeated problems with late pickups or “lost” deliveries, this may be incorrect hours in the app? How do they compensate consumers (and your business) for repeated errors? If you aren’t satisfied with the answers to these questions, its likely time to enlist an expert or technology to help ensure your store is online and servicing customers as you’d want it to. 

Using technology to prevent and fight chargebacks 

More than 30,000 restaurants trusted Delaget to help with lost prevention, data automation and operational streamlining. Delaget excels at using restaurant analytics to detect loss and theft, facilitate informed decision-making, and promote financial wellness. Solutions such as third-party delivery reconciliation software and recovery work to manage delivery data from multiple service providers and dispute recoverable losses. It’s the chargeback assistant you’ve been waiting for, right in the palm of your hand. 

Schedule a demo today to see how Delaget’s proven solutions, seamless setup, and unmatched results can take your business to the next level.