How can suppliers reduce chargebacks from retailers

by | Aug 7, 2019 | Order Management, Suppliers

Being hit with chargebacks is often just a matter of doing business for some suppliers. For some retailers too. Back in the 1990s, Kmart used to just automatically levy a 2% chargeback against all orders from all suppliers because it was easier than trying to count each and every infraction.

Why do chargebacks happen?

Chargebacks can be for something as simple as a carton not being marked correctly, not being packed according to retailer specs, being late in shipping, or not sending the EDI transactions that were required.

Depending on the retailer, the chargeback could be a certain amount per box, shipment, order, or even a flat rate. This means the retailer is making a deduction in their next payment to their supplier.

How can you combat chargebacks?

While there are several reasons for retailers to hit vendors with chargebacks, the one where SPS Commerce can help the most is in the fulfillment process with clean and consistent EDI data. With the way our network operates, and the way suppliers and retailers can automatically transfer information to each other, we can help reduce the number and amounts of chargebacks being levied.

For example, a vendor might neglect to send an EDI document transaction called an Advanced Shipping Notice (ASN) on time or at all, which can cause problems. Many retailers want the ASN because it helps them automate the receiving of goods faster, which helps get the goods onto the floor or in the warehouse faster. It also helps them with flow through, which gets goods right off the dock and out to a particular store.

Not getting an ASN on time can be a big pain point for retailers. If they don’t get it, they have to manually manage and check in a shipment, which can tie up a lot of resources. One retailer we spoke to said they save $.25 per box when they receive an ASN on time. Without it, it takes four warehouse staff a couple days to unload a trailer; with it, it takes one guy four hours.

Not getting the ASN in a timely manner is the number one reason we see for a chargeback. One national retailer charges $5,000 for a missing ASN. At one missing ASN a month, you could have paid the salary of a person whose only job it is to send ASNs to that retailer.

Although, an ASN is a complicated document that comes with a variety of shipping labels and bar codes. The data goes into the retailer’s inventory management system, and tells them what items and quantity are being received. They’ll scan the bar code, find the ASN data that was received, find the item, which gives the bin location to the inventory management person, who puts it in place.

Without this ASN, they manually check in each box inside each case, stage the boxes, go find the bins personally, and load them in.

Most retailers are not interested in assessing a chargeback to their suppliers, when done the assessments are typically the recovery of the costs of manually putting everything away. But it can often be less expensive to just accept the chargebacks than to try to fix it. However, that doesn’t mean its not painful. The best solution for many vendors is working with a technology partner to help manage their order data connections through EDI.

SPS Commerce’s system can help you find ways to reduce chargebacks without spending a lot of time and energy doing it. Contact an SPS Commerce representative for more information.

Scott Bolduc
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