Lisa Batra's three-year-old business is a closet saver for parents, allowing them to buy and sell their children's outgrown designer duds online. But when she started My Kid's Threads, based in Newtown, Pennsylvania, Batra didn't realize that setting up an online company would come with a nasty, recurring cost: fighting to keep the money she'd already made.

Batra has joined the millions of small-business owners deluged by chargebacks. More costly than simple refunds, chargebacks occur when a customer who uses a credit or debit card disputes a payment that appears on his or her monthly statement and complains to the bank, which can reverse the charge and land you with the expense--even if the customer is committing fraud. "Defending a chargeback is extremely time consuming and has a very low probability of success," says Batra, who initially lost about $1,000 per month on such costs.

While a perennial problem for retailers, the chargeback pain is getting worse for all business owners as more commerce and more fraudsters move online. The expense goes beyond just the losses themselves; associated costs, including bank fees and replacing merchandise, are also mounting. Chargeback expenses increased 8 percent last year for all U.S. merchants, and "for every dollar of losses, merchants are losing $2.40," a recent LexisNexis report found. Batra and other founders have several ways to fight back.

Keep track of who's buying

You can stop some potential fraud up front. "We don't ship internationally, so we block and filter IP addresses from certain countries" known for suspicious cyberactivity, Batra says. Because she sells only domestically, she also notes any large orders coming in at unusual hours and for unusual amounts. "These are moms buying and selling, so we'd expect around 1 a.m. at the latest," she says. "A large order coming in very late at night is a red flag," particularly if the orders are for a variety of sizes--obviously meant for more than one or two kids.

Don't just trust--verify

When Andrew Reeves, founder of Luxe Translation Services, started his Beverly Hills-based company in 2011, chargebacks sometimes ate up 1 percent of his monthly sales volume. That's enough to make a bank take note, and potentially terminate its deal to process a company's credit card payments, says Phillip Parker, founder of review web­site CardPayment­ Reeves now requires most customers to provide a scan of a picture ID and a statement that the charges are authorized. "I don't apply this rule 100 percent of the time," Reeves says. "It depends if I see warning signs, such as someone saying the service seems too expensive or who disrespects the work involved." His chargebacks are down from about 10 to three per month.

Ban chargebacks

If you're running a contract-based service business, including IT or law, you can follow the advice of Todd Spodek, who handles divorces and criminal defense cases at Spodek Law Group in New York City. "A lot of times, we represent people in a bad situation, and they're often desperate," he says. Though he's had few chargebacks, the exceptions were big: A client once refused to pay $10,000 in a divorce case. Now Spodek's contracts stipulate that the client has "waived the right to charge back for any reason."

Outsource the fight

This will cost the most up front, but outside services can review your business practices and fight any chargebacks that occur. Fraud-prevention companies, including Verifi and Ethoca, can also send real-time alerts from the card issuer, so you'll know about a complaint before the chargeback is processed, says Keith Briscoe, Ethoca's chief marketing officer. That will allow you to quickly issue a refund to the customer before the chargeback occurs, saving yourself money and preventing heartburn as well.

Prevention Tactics

Some chargebacks are inevitable, but certain business behaviors practically invite them. Here's what to avoid up front.

Hiding away

If your contact information and return policies are hard to find, customers may give up and just complain to their banks. "Don't make customers jump through hoops to return something," says Srii Srinivasan, chief executive officer of Chargeback Gurus.

Strange names

If customers can't recognize your business's name on their credit card statement, they're more likely to challenge the payment, says Monica Eaton-Cardone, co-founder of Chargebacks911. Check with your card processor to make sure you're registered under an obvious name.

Sloppy service

If you delay processing customer refunds, don't follow customers' tracking numbers, or fail to catch duplicate orders (which can occur when a customer clicks the Submit button twice), you're inviting trouble. "Make sure you run a tight ship," Srinivasan says.

Playing tricks

Some less-than-transparent business practices have financial consequences--and destroy customer trust. The "opt-out" model--offering a free trial and then charging the customer--sees a high rate of chargebacks, says Phillip Parker of "Either get away from that model, or alert customers before charging them," he advises.

The Head-Pounding, Revenue-Draining, Morning-After Effect Is Getting Worse

70-80 percent: The portion of chargeback disputes that are resolved in the customer's favor.
Source: Federal Reserve Bank of Kansas City

60 days: The period in which 50 percent of customers who commit chargeback fraud will try it again.
Source: Chargebacks911

1.5 percent: The average amount of annual merchant revenue eaten up by fraud in 2016--almost tripled from 2013.
Source: LexisNexis

$16 billion: The total card-based fraud losses suffered by banks and merchants worldwide in 2014.
Source: Nilson Report

40-50 percent: The portion of chargebacks that are due to fraud rather than merchant or customer error.
Source: Federal Reserve Bank of Kansas City