12.04.09

Cancellation Policies and the Dreaded Chargeback (Part 1)

Posted in Ownership of a Hospitality Business at 2:18 pm by Frank Petrosino

Mr. and Mrs. Smith have stayed at your Vermont inn a number of times in recent years. You are glad to see that they have yet again made a room reservation for next Saturday night and have requested their usual room, which carries a weekend rate of $250 per night. Your cancellation policy clearly states that for room reservations not cancelled by 6:00 p.m. (your time) on the night of the reservation, the person making the reservation will incur a charge equal to the cost of the night’s stay plus tax. Saturday night rolls around, and you get a call from Mr. Smith at 8:00 p.m. Mr. Smith informs you that he wants to cancel his and his wife’s room reservation. You dutifully charge Mr. Smith’s credit card for the cost of the night’s stay (i.e., $250) plus tax (i.e., 9% of $250, which equals $22.50). A few weeks later, you receive a chargeback notification telling you that Mr. Smith disputes your $272.50 charge and asking you to provide documentation supporting the charge. What do you do?

Chargeback Notifications

Generally speaking, a chargeback is a charge made against your credit card merchant account because your customer disputes a charge you made to the customer’s credit card. The dispute usually triggers the sending of a notice to you of the chargeback. This notice is usually called a chargeback notification, a retrieval request, or something of similar ilk. Any such notification or request will ask you to provide certain information in order to dispute the chargeback. Please take careful note of the deadline to respond. You may only have as little as 7 days to respond, depending on what the notification or request mandates.

Responding to a Chargeback Notification

Your response to a chargeback notification regarding cancellation or no show charges actually starts well before you receive the notification. To have any chance of succeeding, you must first have had in place a clearly written cancellation and no show policy. Such policy must identify the circumstances in which a customer will be charged and what the charge will be. Here is a sample cancellation and no show policy:

“Please notify Hotel Opulence immediately of any changes or cancellations to your reservation. If you do not show up to claim your reserved room(s) or if your reservation is not canceled by 6 p.m. Eastern Standard Time on your scheduled arrival date, you will be charged for one night’s stay (per room reserved) at the average daily rate you would have paid (per room reserved) for all the days covered by the reservation, plus all applicable tax due. ”

Any cancellation or no show policy you use must be clearly communicated to your customers. You will, of course, want the policy posted conspicuously on your website and at your establishment. During the reservation process, you need to at least communicate to the customer (1) the applicable room rates, (2) the hotel’s street address and other contact information, (3) the reservation conformation code and the need to retain it, and (4) your cancellation and no show policy. This can be done through a confirming letter sent via email or regular mail (or both); keep a copy of the confirmation letter for your records.

If the customer cancels the reservation either before or after the cancellation deadline, keep a written record of the date and time the cancellation was processed and provide the customer with a cancellation number. It is good practice to send a notice to the customer confirming the date and time of the cancellation, reminding the customer of your cancellation policy, and showing the amount the customer was charged (if a charge is warranted).

In a no show situation, it is good practice to send a notice to the customer detailing the reservation, confirming the no show, reminding the customer of your no show policy, and showing the amount the customer was charged.

You will want to have a chargeback response procedure ready so there is no delay in responding to the chargeback notification. Such procedure should include a calendaring system to remind you of response deadlines. Ready access to all reservation, cancellation, and no show records is a must. Regularly obtain and read the chargeback policies (and policy updates) for each credit card provider whose card you honor. Your procedure should document each step taken during the chargeback response process and should also keep track of historical dispute results.

Once you respond to a chargeback notification, it is up to the applicable credit card company to analyze your response and determine whether the chargeback is justified. If the credit card company sides with you but the customer is still disputing the charge, you may be able to utilize the credit card company’s dispute resolution procedure (e.g., arbitration in which the credit card company acts as the arbitrator). The whole process can take a week or it can take many months depending upon the stage in which the chargeback dispute is settled.

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