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6 Most Common Reasons for Chargebacks In Retail

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Learn about the 6 most common chargeback reasons retailers use to deduct payment. Major retailers like Amazon, Walmart and Target have implemented smart vendor scorecards to encourage suppliers to meet order timelines and quantities as accurately as possible. 

These scorecards help big stores to stay competitive, lower their inventory-related costs, and keep their shelves well stocked to meet demand at any given time. 

Vendor chargebacks and deductions in retail occur when brands don’t meet the parameters set out by their retailers’ scorecards. Non-compliant shipments often cause expensive inefficiencies and result in stock-outs, losses of sales, and ultimately, negative impacts on companies’ bottom lines.

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What are Chargebacks in retail?

Chargebacks are financial deductions that retailers issue against invoices to recoup lost revenues and time. Retailers may charge their distributors and manufacturers fees for a variety of problems and delays. They issue punitive charges for inconsistent paperwork, like purchase orders and invoices.
Chargebacks in retail can also occur as a penalty for any type of packing and freight issues, such as late shipments, experienced by retailers. Depending on the retailer in question, the fine could be a certain sum per box, order, shipment, or even a flat rate. Fines can amount to as much as 20% of an invoice, which sometimes equates to thousands of dollars in revenue loss.

Damaged goods and shipments not received are reasons for chargebacks, as are manufacturers and distributors not shipping items within specified time frames. Retailer chargeback processes are automated and usually automatic. And larger companies can be quick to apply charges for perceived supply faults.

Sometimes, these retailers’ incorrect management processes are to blame for the inconsistencies they detect. Distributors and manufacturers can dispute chargebacks reasons because of this, and the simplest way to do so is through an automated process. At the end of the day, disputing all deductions can create a positive ROI, and will encourage retailers to penalize their other suppliers instead.

Download Whirlpool Case Study

Common reasons for retail chargebacks

There are many reasons why retailers choose to make deductions on their distributors’ and manufacturers’ invoices. Here are 6 of the most common reasons for chargebacks in retail you should be aware of.

1. Shortage Claims

This type of claim is one of, if not the, most common deduction type in retail. Shortage claim happens when a retailer believes what arrived at their fulfillment centers differs from what the supplier claims was shipped. The problem lies with the fact that the retailer orders in “eaches,” which means that each individual item is considered one unit. For example, if the customer orders 12 units and receives 10 units, the two units missing is a shortage. 

Similarly, concealed shortage claims occur when the shortage is contained in a case of products. It isn’t visibly evident that there’s a shortage until after delivery as the packing is intact. Let's say for example, a supplier ships 12 units in a case pack. The retailer subsequently orders one case of 12 units. However, when the retailer receives the order and opens the case, there are only ten units in the case. The two missing units are a concealed shortage.

Retailers can shortage claim these missing goods, which can add up to a substantial amount in the long run.

2. Late or Early Deliveries

Big retailers place their orders based on specific sales projections. Most of them aim to receive goods just before their shelves are empty, and not a moment before then, lest they become overstocked. 

This ‘just-in-time’ ordering model helps them to lower their inventory costs and prevent stock-outs. When shipments arrive outside of the Must Arrive by Date (MABD) stipulations, be it early or late, retailers’ essential sales processes become disrupted.

3. Order Fill Rate Violations

Distributors who deliver goods too early or too late can be penalized, but so can those who deliver too many or too few products and disrupt the all-powerful just-in-time strategy. 

Retail giant Walmart is an excellent example of a retailer that uses this metric to their advantage. The brand’s On Time In Full program issues vendors with grades based on how accurately they deliver the exact number of items ordered.

4. Failing to Meet Packaging Specifications

Reconfiguring trucks or skids take up precious resources and time, and tends to result in late deliveries. However, if set up with rework amenities, problems with single pallets can be fixed quite efficiently. Packaging problems become more convoluted when equipment instructions are ignored or not followed to the letter. 

As an example, some firms don’t allow pinwheeled pallets that load onto trucks with alternating orientations. If your skids were to arrive pinwheeled, unloading them will take additional hours of work. This interrupts planned schedules and creates unnecessary and inconvenient delays.

The common denominator behind the reasons for chargebacks in retail is the disruption of planned schedules and efficiencies. Retailers don’t issue deductions simply to punish their vendors. Instead, they do it to encourage behaviors that promote maximum efficiency and profitability for all parties.

5. Issues with ASNs

An ASN is an Advanced Shipping Notice that informs your retail or wholesale customers that their shipments are on the way. This notification can take the form of an email, phone call, fax, or more complicated media like EDI 856 transactions.

ASN chargebacks are issued for failing to send an ASN, sending one late, or sending duplicate or invalid ASNs to the same retailer. All these scenarios create schedule disruptions and confusion for retailers. 

You can avoid ASN chargebacks in retail by sending your ASNs through as soon as the shipment is processed and your tracking information becomes available. You or your team may wish to submit these notices yourselves, but a more ideal option is to have your shipping team submit them on your behalf. You can minimize the risk of chargeback-inducing errors by allowing your fulfillment partners to submit ASNs to your retail clients on your behalf.

6. Using the Wrong Carrier

Retailers often prefer working with certain carriers, especially when it comes to less than truckload (or LTL) shipments. Many LTL carriers travel to huge retail warehouses daily, while others only make those trips weekly. 

If you partner with the wrong carrier, your order may sit at an LTL facility for days or even weeks, causing you to miss your due date even though you budgeted plenty of time to meet delivery deadlines.

Download to read book distributor chargeback and deductions case study.

the bottom line

Chargebacks and deductions  are a fact of business for the many distributors and manufacturers partnered with major retailers – but they can be disputed using the retailers processes. Cloud Robotic Automation provides an effective and automated way to pinpoint the reasons for chargebacks, process, and dispute costly deductions. 

Solutions like iNymbus give you the power to streamline your deduction management processes. They free up more time that you can use to work with downstream departments like Warehouse and Logistics to streamline processes, strategize order management, and deal with pressing pricing and back-ordering issues. 

Ultimately, the cost savings in both time and resources make robotic automation a workable solution, especially when compared to the potentially devastating costs of retailer chargebacks and deductions. 


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