Cancellations & Chargebacks

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Business Strategies - Avoiding Cancellations and Chargebacks

Two days before their stay, a couple calls to cancel their weekend reservation. They have simply changed their mind. Maybe they got into a big fight. All you know is that there isn't enough time to rebook the room. It's the weekend and you are always full. It feels like you just lost a few hundred dollars. How do you handle the situation professionally? Even if you charge the card on file, how do you avoid a chargeback?

In this article we discuss strategies for handling and avoiding cancellations and chargebacks. Incorporating a solid cancellation system can drastically improve your chances of successfully contesting chargebacks.

Refining Your Cancellation Policies and Strategy

There is a delicate balance to cancellation strategy. You might find yourself being too hard or too soft. Be firm but understanding. For example, if a guest calls to cancel because her mother just passed away from cancer and she is heartbroken. Hopefully, you will express condolences and tell her everything is taken care of, even if a portion of her reservation is non-refundable. You will more than likely win a lifelong customer. On the other side, if you worry about offending no-shows and walk-offs, they have already cost you business and probably won't be sending you business in the future. Don't burn a bridge, but hold them to their commitment in a polite and professional manner.

If you have the time, one of the most effective methods to reducing no-shows and other types of cancellations is to call or email the guest a couple days before their cancellation deadline. Express how excited you are to have them stay and offer to answer any questions they may have. This friendly reminder goes a long way and earns customer loyalty.

If it has been a while, you might want to review your cancellation policies and make sure they handle any new cancellation situations you have encountered. Make a list of the more memorable cancellations you have had. Establish policies that are in your favor. Reserve the right to make exceptions.

While refining your cancellation policies, be polite and courteous. Complete sentences and paragraphs are better than bullets and phrases. [View an example of a member's Terms & Conditions page...]

Write policies unique to your property. If your rooms fill up fast, shorten the cancellation period. If your rooms are booked further out in advance, lengthen the cancellation period. Some operators will refund a guest if their canceled room is rebooked. If you are extremely busy, it might be too much extra work. Avoid complicated math and rules. It is harder to enforce them. Charging a flat cancellation fee or a percentage of the reservation is common.

Practice makes perfect. If you have staff, do some practice calls and have them handle the different cancellation scenarios: death in the family, dead-beat guest, walk-off, no-show, irate guest with cause, irate guest without cause, etc. Be courteous, understanding, yet firm. Separate your frustration with the situation from your customer interaction. Blame the cancellation system instead of your inn, since it is an inanimate object. Replace "It's our policy..." with "The cancellation policy is..." The last thing you want is to turn a guest into an enemy/protestor who tells everyone they know how they have been wronged, even if it isn't true.

Legally Protect Yourself

Make sure that your cancellation polices are easily found on your website. Create a menu item just for your policies. If it is difficult to find them, the guest might not be legally liable. Include your policies in confirmation emails and letters. Include them in cancellation emails and letters. Verify that all the copies of your policies are up-to-date and identical.

You might want to run your policies by a lawyer. If you don't have a lawyer, call around and find one that will trade a night's stay for looking over your policies. With lawyers, avoid letting them create your policies from scratch since they more than likely don't understand your business. They can take what you have and make sure that it is legal and binding.

As guests arrive, have them sign a copy of their bill or receipt that has a copy of your cancellation policies on it. Store this copy for up to a year.

Fighting Chargebacks

Peter Goldmann, an experienced business and finance journalist and editor of the monthly newsletter, White-Collar Crime Fighter, said concerning the hospitality industry, "While customer service is indeed the ultimate factor determining if a hospitality property sinks or swims, neglecting [chargeback] controls is bound to shrink the bottom line...no matter how wonderful guests think their visits are. The challenge is to achieve balance. Balance between the quest for premium customer service and the unavoidable necessity to keep hard-earned revenues from flowing out through exploitation of inadequate internal controls."

A chargeback occurs when a guest asks their credit card company to remove a charge from their credit card statement. The credit card company will ask both you and the guest to provide an explanation of the charge. Most guests don't know about chargebacks and that it's even an option. However those that do know about chargebacks normally know the rules.

Presentation, appearance, and content are what matter with regards to chargebacks since a live person is involved in the dispute process. If your story and presentation are better than the guest, you win. Keep in mind that credit card companies want to reduce their liability as much as possible. If what you present them does not protect them, they won't award you the dispute. With this understanding, the easiest way to outdo the guest is to create a chargeback response system. It is nothing complicated, but if you have a system that you follow consistently and the guest doesn't, chances are your presentation is more convincing.

The key to a successful chargeback response system is to capture as much legally binding information as possible. The most critical step is to ALWAYS review your policies with your guests and get them to agree to them. Whether you use software or paper, always record the date, time and your initials when guests agree to your policies. Train your staff and make sure they stick to this practice. If the guest booked online from your website or through GDS, check with your provider and make sure that their system is recording the date and time the guest agreed to your policies. If your system doesn't support this, call guest back after the reservation is made and review and record that they agreed to your
policies. If you have on file the date the guest agreed to your policies, you'll win chargeback disputes with ease.

Create a professional chargeback response document. Use this document each time you have a chargeback and make sure that it presents your side of the story. It should be well written. State your case clearly. Indicate that without sufficient notification, the room goes vacant instead of occupied. Include the guest's name, address, phone and email address. Don't handwrite this document. Describe what pages are included as proof of the guest's commitment and understanding of your policies. Fax or mail the following documents along with your chargeback response document:

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  • If you use hotel software, include the timestamps recorded when the guest agreed to your policies either when they booked online or called by phone. These are legally binding timestamps. Call your vendor to find out how to access and print these timestamps.
  • If you don't use software, include the page of your guestbook where you recorded and initialed the date the guest agreed to your cancellation policies.
  • Include a printed copy of your website's cancellation policies page. If you have a "Policies" main menu item on your website, the credit card company will be impressed.
  • Include a copy of the guest's email confirmation letter along with the timestamp of the email.
  • Include every letter, email and correspondence you have had with the guest.
  • Include a copy of the guest's bill. Design your bills so that they include your polices and a place for the guest to sign.

Final Words

Avoiding cancellations and chargebacks is about creating clear cancellations policies as well as a chargeback response system. Track every opportunity where guests can agree to your policies. When unjustified chargebacks occur, present an appeal that is convincing and protects both you and the credit card company.