Answers
How do you check refunds and chargebacks before buying an online store or small SaaS?
Short answer: Ask for the payment processor's refund and dispute reports for the last 12 months, then compare gross sales, refunds and chargebacks month by month. Value the business on net revenue after refunds. A rising refund rate, disputes near the processor's monitoring threshold, or refunds booked outside the processor are reasons to dig further or reprice.
Why do refunds and chargebacks matter?
Many listings quote gross sales: what customers paid before anything came back. Refunds are money the seller returned, and chargebacks (also called disputes) are payments a customer reversed through their card issuer, usually with a fee on top. Both come out of revenue, and a high dispute rate can lead a payment processor to hold funds or close the account. If you value a business on gross sales, you pay for money it never kept.
What should you ask the seller for?
- The payment processor's refund and dispute reports for the last 12 months, month by month: Stripe, PayPal, Shopify Payments or whichever the business uses.
- Gross sales, refunds, disputes and dispute fees for the same months, so the three can be compared.
- Any refunds paid outside the processor, such as store credit, PayPal sends or bank transfers.
- Any warning or monitoring notice from a processor, and any reserve or payout hold on the account.
- The refund policy as it stood each year, since a change in policy changes the numbers.
Check the report totals against the processor dashboard on a screen share; see how to verify Stripe revenue and how to verify Shopify store revenue.
How do you work out the rates?
- Refund rate: refunds in a month divided by gross sales in the same month.
- Dispute rate: number of disputes in a month divided by the number of payments in that month.
- Net revenue: gross sales minus refunds, disputes lost and dispute fees.
Work these out for each month, not just the year. A steady rate is a cost of doing business. A rate that rises over the last few months usually means something changed: a new product, a new ad channel or slower shipping.
What are the red flags?
- Profit worked out on gross sales. Ask the seller to restate profit on net revenue before you talk price.
- A rising refund rate in recent months, especially after a sales spike; see revenue concentrated in a recent spike.
- Disputes close to the processor's monitoring level. Card networks and processors watch dispute rates, and the account may not survive a few bad months. Our rule of thumb: ask questions at any dispute rate above about half a percent of payments.
- Refunds paid outside the processor, which keep them off the reports a buyer sees.
- A payout hold or reserve the seller did not mention.
- Subscriptions counted as revenue while refunds are high; compare with MRR above revenue collected.
What does a composite check look like?
This is a composite example, not a real deal. A small store lists $8,000 a month in sales and $2,400 in profit, asking $70,000. The Stripe reports show refunds rising from 4% to 11% of sales over the last four months, after the seller added a cheaper product line, plus about $150 a month in lost disputes and fees. Net revenue is closer to $7,100, and profit on that basis is about $1,500 a month. The buyer offers on the lower profit, asks for the refund trend in writing as a disclosure in the purchase agreement, and agrees who pays refunds on orders placed before closing as a closing adjustment.
Run the listing through the free red-flag checker first, then use the ecommerce due diligence checklist for the rest.
Frequently asked questions
What refund rate is normal for a small online store?
It depends on the product, so compare the business with itself over time rather than with a single benchmark. What matters most is whether the rate is steady or rising, and whether profit was worked out after refunds.
Who pays refunds on orders placed before the sale?
Agree it in writing. A common approach is that the seller covers refunds and disputes on orders placed before closing for an agreed period, often through a holdback or a closing adjustment. This is not legal advice.
Do chargebacks transfer with the business?
If you take over the seller's processor account, its dispute history usually comes with it. If you open a new account, old disputes stay with the seller, but you need a written agreement on who pays them.
Sources
- FirstPass Memo, red-flag checker rules, our own rules, published as /rules.json
- FirstPass Memo, seller question bank, October 2026 (general checklist), our own questions
- FirstPass Memo, free buyer calculators, our own calculators; the formulas are on each page
Related
- Free red-flag checker
- How to verify Stripe revenue
- How to verify Shopify store revenue
- Ecommerce due diligence checklist
- Closing adjustments
- How to tell if listing revenue is fake
- Red flag: MRR above revenue collected
- Red flag: revenue concentrated in a recent spike
- Glossary of listing terms
- More questions buyers ask
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Composite examples are invented and labelled. Figures from other sites are quoted with a link and the date we read them; FirstPass figures are asking prices and seller-stated profit, not sale prices. Informational screening only, not investment, legal or tax advice.