Overview
Chargebacks occur when a customer’s bank reverses a payment. On Pepper, chargebacks can apply to both ACH and card transactions. Pepper provides tools such as Plaid verification, in platform communication, and documentation support to help merchants reduce risk and manage disputes effectively.
Types of Chargebacks
ACH Chargebacks
ACH chargebacks are often triggered for specific return codes. The most common is R01 insufficient funds, which indicates that the customer’s bank could not complete the debit because the account balance was too low.
Other common reasons an ACH chargeback may occur include:
No account / unable to locate account — the bank account number is invalid or the account cannot be found
Withdrawal count exceeded — the account has exceeded the number of permitted withdrawals
Account closed — the bank account on file no longer exists
Customer advises not authorized — the account holder disputes having authorized the transaction
Bank refused — the account holder's bank declined the payment
Pepper strongly recommends enabling Plaid as a payment method, as Plaid authenticated bank payments significantly reduce ACH chargebacks.
Example of an ACH Chargeback
Card Chargebacks
Card chargebacks are reversible disputes initiated by the card issuer. Unlike ACH disputes, card chargebacks can be challenged if you provide evidence within the required timeframe.
Common reasons a card chargeback may occur include:
Customer disputes the charge — the cardholder does not recognize or disagrees with the transaction
Authorization not obtained — the payment was processed without valid authorization
Fraud — the billing address or zip code does not match the card's information on file
CVC declined — the card's three-digit security code is incorrect
Invalid card number — the card number is incorrect or belongs to a closed account
Insufficient funds — the card does not have enough available balance to cover the charge
Example of a Card Chargeback
Deadlines
Dispute windows vary by card network. Visa typically has the shortest response period, which can be as brief as nine days.
What Happens When a Customer Files a Chargeback
A chargeback occurs when a customer disputes a charge directly with their bank or credit card company, bypassing Pepper entirely. Here is what happens automatically once a chargeback is filed.
1. Pepper is notified by the payment processor
As soon as the payment processor receives the dispute, Pepper is notified automatically. No action is required from you or the customer to trigger this.
2. The invoice balance is restored to "owed"
Any invoices that were covered by the disputed payment are immediately marked as unpaid again. The customer will see them as outstanding balances due in the app, and they will appear as open receivables on your end again.
If your account has a grace period configured, that window applies here too. Invoices will not flip back to overdue instantly during that period.
Note: A grace period is a set number of hours Pepper holds a balance after a failed payment before marking invoices overdue. Not all accounts have this configured. Contact Pepper if you have questions about your account's grace period settings.
3. The disputed funds are clawed back from your settlement
If Pepper had already paid out the funds to you from that payment, a deduction will be created against your next settlement to recover that amount. You will see this on your settlement statement as a CHARGEBACK line item.
A flat $10 fee per chargeback is also charged regardless of outcome. This fee is passed through to you and will appear as a separate line item on your next settlement.
4. The customer's payment method may be removed
Whether the payment method is removed depends on the reason for the chargeback:
Situation | Payment method removed? |
Customer disputed the charge with their credit card company | No — kept on file |
Customer told their bank to block the ACH payment | No — kept on file |
ACH bounced due to insufficient funds | No — kept on file |
ACH failed because the account or routing number was invalid | Yes — automatically removed
|
If the issue is a one-time event (low funds, customer dispute), the payment method is preserved so the customer can pay again. If the account details themselves are invalid, the method is removed to prevent further failed attempts.
5. You receive an email notification
Pepper sends an email to the relevant members of your team (anyone with payment notifications enabled) containing:
The customer's name
The total amount disputed
The invoice number(s) affected
The payment method that was used
The reason provided for the chargeback
Dispute process
Once you receive a chargeback notification, here is what to do:
Contact the customer to understand why they disputed the charge and resolve the underlying issue.
Collect payment again — once resolved, the customer can re-pay the restored invoices through the app, or you can process payment manually.
Check your settlement statement for the chargeback and fee deductions so your records reconcile correctly.
If the customer's payment method was removed, they will need to add a new one before paying via autopay again.
If you plan to challenge the chargeback, notify Pepper immediately. The sooner you tell us, the more time there is to prepare strong documentation. Pepper works with the evidence you supply to create and submit the dispute packet to your processor.
Chargeback Fees
A $10 fee is associated with each chargeback. This fee is passed through to the distributor and will be deducted from the distributor's next deposit, in addition to the chargeback amount itself.
Notifications
Who receives chargeback notifications
Chargeback notification emails are sent to distributor admins only. Distributor users and DSMs do not receive chargeback emails automatically.
Notifications are only sent when the Enable payment emails setting is turned on. This setting can be updated in PMC (employee preferences or User Config) or through in-app notification preferences.
If your team needs to act quickly when a chargeback occurs, make sure a distributor admin with payment emails enabled is monitoring the inbox. See Managing Payment Email Notifications for more details.
Customer Communication within Pepper
In many cases, clear communication with the customer can prevent a dispute entirely. Pepper’s in app chat allows you to message customers directly, document conversations, and request payment updates.
For Example:
A customer card fails
You ask them in chat to update their card
The customer adds a new card through their Wallet or while making a new payment
The conversation is recorded, creating a reference trail if needed for future disputes
This communication history can be valuable supporting evidence in the event of a chargeback.
Chargeback Documentation
Pepper prepares formal dispute documentation using information provided by merchants. These materials may include transaction details, communication logs, proof of authorization, and any other evidence required by card networks or processors. This documentation format has contributed to successful dispute outcomes.
Need Help?
If you receive a chargeback or think one may be coming, reach out to the Pepper team right away. Fast action improves your chances of a successful dispute.