Hotel Chargebacks: Reduce Disputes & Protect Revenue

What if the guest did a mobile check-in, received a mobile key and stayed at your hotel for 5 nights, and everything was going well? The room was lit up, amenities were available, and even the hotel staff greeted the guests in a friendly manner.

The other day, when guests left your property, you're about to hear that they filed a chargeback request against your hotel simply because the room was not up to standard, and they even complained that they had a horrible experience at your property.

The other reason was that you had made multiple charges on their credit card.

What causes this hotel chargeback? Is it a sign of bad room service, or does a lack of clear communication result in guest dissatisfaction and revenue loss for hoteliers?

Read this blog to know what hotel chargebacks are, their possible causes, and how hoteliers like you can prevent them.

What are hotel chargebacks?

A chargeback is the process of transaction reversal where the money is returned to a customer's credit card because he/she suspects that a fraudulent transaction happened in their account.

That's why the issuer’s credit card company raises the chargeback request as they want to settle the dispute and recover the lost money in their customer’s account. 

It might be because the prospect (guest) is dissatisfied with the product/service, and they want to dispute charges.

While chargebacks are a game changer for guests at one point because they get their lost money back.

For hotels, it's no less than a nightmare and disappointing trauma as they not just have to return the money to dissatisfied guests, but their reputation would become WORSE.

Moreover, they have to suffer lost revenue for xx nights even if the room is booked.

What are the common causes of hotel chargebacks?

One of the causes could be because the guest had a disappointing experience at your hotel or there was some financial loss such as a billing error or their card was fraudulently misused.

Chargebacks in the hotel industry are caused due to multiple reasons:

1. Failure to meet guest expectations

Guests can request a chargeback when they feel that hoteliers overpromise and fail to meet their expectations. It might be that there was low-quality service, the room was not cleaned properly, or guests didn't get the necessary amenities that the hotel promised.

This brings a gap between what they expected before their stay and what hoteliers delivered.

Here's an example of how guests had a disappointing stay experience – a free Wi-Fi that didn't work (however they promised), room was substandard, and an allergic reaction on their neck- all these reasons are WORTH IT for claiming a chargeback.

2. Billing errors

Guests can raise a chargeback concern when hoteliers charge for services they don't get, and the room rates were higher than what they booked. 

For instance – the hotelier added some miscellaneous expenses such as mini bar expenses while the guest didn’t get any of these services.

Thus, guests can dispute the charges and can get their money if they've been charged for an extra amenity.

3. Fraudulent transactions

Another common cause of hotel chargeback is that guests didn't stay with the hotel, but their card was used fraudulently. It might be that someone stole the cardholder's card and has been using it for a while.

4. Cancellation issues

In this case, hoteliers charge a cancellation fee from guests despite the fact they cancel the booking on time.

It might arise when the hotelier doesn't have clear communication or a cancellation policy.

5. No-show charges

Hotels may charge a no-show fee when guests don't arrive at the property even after making a confirmed reservation. Guests feel that hoteliers should not impose no-show charges because they haven't used the hotel room.

They can claim that they have some other reasons for not coming or the hotel doesn't have a clear cancellation policy.

What are some of the best practices hotels can adopt to avoid chargebacks?

Here's what your hotel can do to avoid such chargebacks:

1. Have clear cancellation and no-show policy

Once a guest raises a chargeback request, the hoteliers should understand why they received such a request from the cardholder's issuing bank.

Every chargeback request comes with a reason code, so it's important for hoteliers like you to identify the reason, find out the root cause behind that, and respond to it within a stipulated time. Gather compelling evidence and prepare yourself to win the case.

Make sure whatever evidence you submit should support your claim.

For instance – a guest raises a chargeback request with their bank because you charged a no-show fee when they ghosted you. Then, you could state that you already informed the guest in advance that if they wouldn't appear, you'd charge a no-show fee.

For that, you need to communicate with guests clearly about the no-show, cancellation, and refund policy. Such a policy should be showcased on your hotel's website, OTA, and other booking platforms.

Make sure to send pre-arrival reminders to guests so they won't say "they don't know". You won't face consequences as the guest has already agreed to terms and conditions once they decide to stay at your property.

2. Collect evidence that can support your argument

To prove that guests stayed at your property, make sure to keep documents handy with you.

It can be sales receipts or whatever communication happens between you and the guest, digital agreement where the guest has given consent, or any payment proof such as a customized invoice that clearly specifies room booking, amenities, or taxes.

As proof, you can showcase that you already communicated to the guest in email about no-show or cancellation policy in advance and the guest was aware of that at the time of booking.

3. Invest in staff training

Train your staff effectively so that they can manage guest complaints.

If you notice that a guest is dissatisfied with an amenity, the room was messy, or the food at your restaurant was not good, then make sure that your staff can respond to guest complaints before it becomes a concern for you. That'sthe sure-shot way of avoiding hotel chargebacks.

4. Clear payment processes

If your billing descriptors aren't clear, then it might confuse guests. Use clear and transparent billing names on guest credit card statements that they can easily recognize. Avoid including generic names such as hospitality services.

The invoice should clearly provide a breakdown of charges for room, dining, and other services.

For instance – The guest would be charged $120 for room charges, $100 for spa treatment, and $20 for taxes.

The best way to smoothen payment processes is by investing in payment processing software. It not only protects cardholder information but also helps you avoid chargebacks.

5. Use PMS to avoid chargebacks

Another strategy to avoid hotel chargebacks is to invest in a property management system. This type of hotel management software can help you send payment reminders to guests through different channels such as e-mail, WhatsApp, etc.

Even if guests forget about making payments for reservations, then the reservation would be automatically cancelled.

While if guests won't appear on the confirmed reservation date, then the hotelier might charge a no-show fee. In such a case, guests won't go for chargeback and cannot claim that the hotelier didn't have a clear cancellation policy in place.

Impact of chargebacks on hotel revenue

The effects of chargebacks are worsened for hoteliers not just in terms of revenue loss despite the fact guests stayed at your property. It also affects the hotel reputation badly, which means it affects their future bookings and revenue.

More than that, they have to face the aggression of disappointed guests. Besides that, hoteliers incur additional fees which range between $5 and $500.

A report from the state of chargebacks in the travel and hospitality report states that the hospitality industry faced chargebacks amounting to $25 billion in 2023. The amount of chargeback is so high in the hospitality industry, but it's even higher in other sectors.

Wrapping up

Hoteliers won't always receive a chargeback request, but there might be a once-in-a-while scenario where the guest can raise a chargeback request on you.

Studies state that 50% of guests request a refund even if they face little trouble during their stay, and they expect their money to be back. Make sure to have clear communication policies in place and address the issues that guests are dissatisfied with at that moment.