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West Coast and California Logistics Blog

How Chargebacks in the Retail Industry Work and What Can You Do About Them?

Thu, Jul 09, 2020 @ 06:00 AM / by Todd Naramore

All major retailers issue chargeback penalties for non-compliant shipments from their suppliers. The specific penalties are explicitly laid out in each retailer’s routing guide and range from, in our experience, about 1% to 5% of a supplier’s gross invoice amount.

For example, Walmart’s On-Time in Full program charges 3% of item value for products that are late or missing.

Let’s say you ship $10,000 worth of goods to a large retailer. Because of non-compliance with a particular requirement – perhaps you missed the shipping window – that 1% to 5% range means they deduct between $100 and $500 from their payment to you. Annoying but, hey, it happens. 

chargebacks in retail industryNow, suppose you ship $500,000 worth of goods and that charge grows to between $5,000 and $10,000. Hmmm. This is starting to feel like real money.

Next, let’s look at your annual invoices across all retail customers. For a company with $80 million dollars in invoices, you could be looking at deductions of up to $4 million for retailer chargebacks. 


And that’s for a relatively small company. For major manufacturers, supply chain errors result in many millions in lost profit. 


What are chargebacks in retail?

When you ship product to your retail vendors, you need to comply with each retailer’s specific requirements. These requirements will be outlined in the retailer’s routing guide, which acts a “how to” manual for working with the retailer. The routing guide includes requirements related to everything from advance ship notices (ASNs) and delivery appointments to pallet building and label placements.

When you fail to comply with a retailer’s requirements, you will be assessed a “chargeback” fee as described above. The most common culprits for chargebacks are as follows:

  • Late, missing or invalid ASNs
  • Missing, inaccurate, defective or un-scannable UCC128 labels
  • Missing, inaccurate, defective or un-scannable product ticketing
  • Order fill rate violations
  • Late or early shipments

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What can you do about retail industry chargebacks?

Now that you understand a bit about chargebacks, your goals are twofold: to prevent chargebacks from occurring and, if they do occur, to fight them when possible. The following high-level tips can bring you closer to accomplishing these goals.

1) Make Sure Someone’s In Charge of Vendor Compliance – Many departments are affected by chargebacks, including Logistics, Sales and A/R, but there is often no clear owner focused on fixing vendor compliance issues. You can choose to do it in-house or you can lean on the right 3PL to assist. A 3PL that is serving many CPG customers must understand compliance dictates across many different retailers and can justify the resources put against compliant shipping.

2) Ensure routing guide compliance – To avoid chargebacks, you – and your 3PL partner – will need to do everything possible to comply with your retailers’ routing guide requirements. When there is no non-compliance, there should be no chargebacks. As mentioned above, one of the biggest causes of chargebacks stems from late, incorrect or unreadable advanced shipping notices. This information, transmitted to the retailer through EDI, details product and quantities of the intended shipment. Retailers use this data to pre-plan receiving, identify discrepancies and give them the opportunity to cross dock freight in order to speed the flow of product to the stores. Get the ASNs right and you may address most of your compliance issues.

3) Challenge Chargebacks – Don’t automatically assume that any penalty issued by the retailer is valid. Your own documentation is crucial to proving your compliance. Photographs of the labeling of the shipment before it is loaded, and driver notes of time-in and time-out, are key pieces of evidence you may have to rely on. Chargebacks often hit the books well after the actual date of the “infraction,” so maintaining a documented history of each shipment will help challenge penalties successfully. Again, your shipping partner can and should help with this. 


Using chargebacks to improve supply chain ops

Frustrated CPG manufacturers may regard chargeback penalties as a separate source of revenue for the retailer, but chargebacks really just highlight opportunities to improve supply chain processes and make things better for the retailer and its suppliers.

These opportunities can improve your business as well. For instance, when your items don’t make it to your retailer’s shelves in time, you’re not only facing chargebacks – you’re losing business as well. Customers have a wide range of purchasing options, and if your product is not on the shelf when your customer is there to buy it, he or she may look to a competitor’s product – in the store or online. In fact, when face to face with an out-of-stock product, many customers will now whip out their phones and order a similar product online – from right there in the store.

Take the opportunity to assess your operations to avoid retail chargebacks and improve your supply chain. If you need help, there are expert 3PL providers at the ready. Choosing a 3PL provider that is familiar with retailers’ routing guide requirements takes the headaches away from you and puts compliance in the hands of a trusted partner. To learn more about working with such a partner on the West Coast, contact Weber Logistics today.

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Topics: Vendor Compliance, Chargebacks

Written by Todd Naramore

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