Ideas for recapturing revenue lost to chargebacks

By Jim Cantrell

Over the years I have talked to many retailers in vendor management, electronic data interchange (EDI), merchandising, and other roles about the great “chargeback” or “offset expense.” From their perspective, quite often in order to effect compliance with badly needed system change, a financial penalty needs to be assessed to the offender. It’s too often said by retail suppliers that the chargeback is a revenue source. We have seen over the years where one or two organizations “may” have gone overboard in their enthusiasm for compliance… let’s not go there. The reality is, it takes a lot of effort from a lot of organizations to get goods from A to B, onto a store shelf, and finally into consumer hands. If you look at the individual reasons for a given chargeback and go open the boxes, typically you will find the error in question. Other times you can find the error by looking at the cancel date on an order and compare it to when the ASN (Advanced Ship Notice) was received.

Very often you will receive a chargeback if any of the following events (or others) occur.

• If the product in the carton you shipped doesn’t match what the carton says—or my purchase order says;
• You change specifications of products in mid-contract and don’t tell me in advance;
• The specifications in your catalog price list aren’t the same as what arrives in my stores;
• I order merchandise in quantities and color assortments that make complete sets and you backorder an item making the set incomplete. Why? Because I can’t sell it until you make the set complete. What’s more, I have to store it until the missing item(s) are present.

Maybe there was no error on the part of the retailer/distributor or supplier, but rather the error comes from a third party. If you don’t check and you don’t track the reasons, you’ll never know how much money your company loses on a regular basis.

What’s really important is how to prevent the errors from happening in the first place. If you find your company faced with a continual, repeating issue, what’s your strategy to locate the root cause and permanently remove the error? Do you have a program to manage this process? Take a look at these methods for chargeback reduction/removal.

Idea 1: Understand your client’s requirements
Sometimes your trading partner’s guidelines and shipping requirements can be daunting. You have to find the key points that will, upon your misstep, cause a chargeback. At the same time, understand your partner’s process for disputing the chargeback(s). Who do you talk to about it, what are their policies, dispute procedures, and so forth? Very often, if you explain the situation and show the corrective action taken, the chargeback may be reversed. Also, too often I hear about suppliers who just “take it” without determining if the chargeback was appropriately applied. Retailers are not infallible.

Idea 2: Be thorough
One of the biggest chargeback topics retail suppliers contend with is the Advanced Ship Notice (ASN). Years ago the ASN was considered a difficult document to manage in a timely manner. Missing, late, or unreadable ASNs should not be a reason for chargebacks if you are thorough in three areas. Number one: Make sure you have an alert of some type within your process to notify appropriate people of an impending cancel date (not a problem for NetSuite users). Number two: Make sure your EDI solution is current with your customer requirements and is tested. Number three: Make sure you document ASNs receipt acknowledgements (FA 997s). Those three steps will help you remove 99 percent of your ASN-related chargebacks.

Idea 3: Be proactive
Get ahead by figuring out where your performance is weak for a customer or where you are at particular risk for future chargebacks. The easiest way to accomplish this is to score yourself. Measure your key customer Key Performance Indicators (KPIs), which will influence your chargeback rates and vendor scorecard performance: on time delivery, order fill rate, good ASNs, accurate/timely invoice, and so on. This will tell you where you need to invest your time to get better and give you a “heads up” on how your next vendor meeting will go. Chances are your clients are already tracking this information. Measure your chargeback exposure. What would happen if, starting tomorrow, your client began auditing all of your shipments? Understanding your risk is important when trying to avoid a huge revenue hit.

Idea 4: Correct the problem
The most important thing you can do to minimize chargebacks is to document, investigate, and fix the problem(s). If you manage your chargeback lifecycle, measure your chargebacks, and keep the scorecard on yourself, you will quickly get a valuable picture of your chargeback health. You begin to understand the issues which are costing your organization the most money. Start at the top and invest your limited resources in solving the problems that can save you the most money. You’ll find that because you can measure the business impact, executive support and the required associated resources are easier to get.

All of these strategies can be implemented without partners or products, but sometimes a little outside help can provide an unbiased view or insight. A solid EDI/B2B integration provider should be able to provide most of this capability to you. In most cases, it’s essentially built into their solution.

Track, Manage, and Don’t Be Afraid to Dispute Chargebacks
Reconciliation of chargebacks can be a difficult task as chargebacks may reflect shipments that were made several weeks ago. Therefore, it is important to have a good chargeback tracking and management process in place.

Develop a process to find out about deductions as soon as they are issued. For example, a major retailer sends daily email notifications about EDI ASN deductions to the email address in the PER-04 segment.

Once the deduction information is received, a process must be in place to resolve the chargeback and get the right functional team members involved. Create a dispute resolution process to suit your company’s requirements. The following is an example of a simple dispute resolution workflow.

A chargeback tracking database should be created to track the status of each deduction. This can be a simple spreadsheet, as shown below.

As you track chargebacks, you’ll find that customers make mistakes. As you remediate and learn more about your trading partner, you’ll begin to see why they’ve put those chargeback policies in place. Equally important, tracking each issue will help you find improvements in your internal processes and enable you to recapture lost revenue.

About Author

Jim Cantrell is a supply chain professional with more than 15 years leadership experience in the Retail, Distribution, 3PL, and Supply Chain sectors. In 2008, Jim formed Retail EDI, an online EDI/E-commerce knowledge portal and boutique consultancy. Retail EDI is one of the largest online collections of process information and editorials. At Retail EDI, Jim has managed projects for numerous retailers and manufacturers in the areas of EDI, ecommerce, business intelligence, and replenishment systems. Retail EDI currently has more than 5,000 members and over 100 contributing parties. Prior to Retail EDI, Jim held leadership positions for hightech, consulting, and ecommerce companies, including roles as Chief Strategic Officer, VP of Sales, and Director of Business Development for companies such as DIcentral, 16 Mile Solutions, Direct EDI, and others. Jim is the Director of Channel Programs at Liaison Technologies (formerly Hubspan) where he manages partner-related activities such as marketing and solution engineering. He was named Channel Chief by CRN magazine and awarded Supply Chain Pro to Know by SDC Exec magazine.

The statement and opinions contained herein are those of Liaison and not of NetSuite. NetSuite has not verified any statements or claims herein and assumes no responsibility for such statements or claims.