"Chargeback" is the term used when a
customer refuses to pay an item on the
credit card bill. It's so named because the
charge gets put back on the
merchant; each
credit card company puts the
burden of proof upon the
merchant to prove the
customer should pay.
In many cases (
hotels especially), the cost of proving the
customer should pay outweighs the original charge. If you go into a hotel bar and run up a $5
bill, but
challenge the item on your
credit card bill, the hotel may decide it's cheaper to
eat the $5 than to spend $10 having someone search through a
pile of
receipts looking for the one with your
signature. This is becoming less common now that more companies keep
digital archives of the
receipts that enable fast
searching, but still holds mostly true.
"Chargeback" is also used in a
business to business (
B2B) sense, when the
seller agrees that the
buyer has a legitimate reason not to pay part or all of the
invoice.
B2B contracts can be very complicated things, and it is a surprisingly common occurrence for the
seller to overlook a
special rate the
buyer has
negotiated. Since all business
transactions have to be recorded in the
general ledger and
balance out, the
common practice is to
charge the unpaid part of the
transaction back to the
seller (hence the name chargeback), and then
transfer it to the
account set up for that
contract.