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 about 1% to 5% of a supplier’s gross invoice amount. For example, Walmart’s On-Time in Full (OTIF) program charges 3% of item value for products that are late or missing.

Chargebacks may seem like minor deductions at first, but they can quickly add up. A company shipping $80 million in goods annually could face deductions of up to $4 million due to retailer chargebacks. For large manufacturers, supply chain errors result in many millions in lost profit.

In this article, we’ll provide a brief history of retail chargebacks, identify common chargebacks, and tell you how to avoid – and even successfully challenge – these fines.

A Brief History of Chargebacks

Chargebacks have been implemented by retailers in recent decades as a way to enforce compliance with shipping and operational requirements.

• 1980s-1990s: As retail supply chains grew more complex, large retailers like Walmart, Target, and Sears introduced chargeback systems to improve logistics efficiency. The goal was to ensure suppliers met delivery windows, adhered to labeling requirements, and maintained accurate shipment documentation. Common penalties during this period typically involved flat-rate fines per infraction, often ranging from $50 to $500 per violation.
• 2000s: The rise of e-commerce and omnichannel distribution led to tighter delivery expectations and more sophisticated chargeback enforcement. Amazon and other e-commerce players adopted similar models, charging vendors for late shipments or incorrect product listings. Penalties became more automated, with deductions occurring directly from supplier payments.
• 2010s-Present: Chargeback programs have evolved to include electronic data interchange (EDI) compliance, order fill rate targets, and advanced shipping notice (ASN) requirements. Programs like Walmart’s OTIF and Amazon’s Vendor Chargebacks have become industry standards, penalizing suppliers for non-compliance while aiming to drive efficiency in the retail supply chain. Today, chargeback fines range from percentage-based deductions (1%-5% of invoice value) to per-instance penalties that can reach thousands of dollars.

Chargebacks are now a permanent fixture in retail logistics, and suppliers must proactively manage compliance to avoid costly deductions.

Common Retail Chargebacks

When you ship products to your retail vendors, you need to comply with each retailer’s specific requirements. These requirements will be outlined in the retailer’s supplier or routing guides. The most common retail chargebacks include the following.

• Packaging violations. Retailers are very specific in the way that they want their products packaged. Missteps here on the part of vendors can result in costly chargeback fines that can add up quickly. Common violations include non-compliance with purchase orders (e.g., the product was supposed to be configured in 12-pack cases, but it shows up at the retailer in 6-packs), failure to include labeling or barcodes on individual polybags, failure to pack individual polybags into a larger box, failure to remove banding from boxes prior to retail pickup, unscannable ticket barcodes, and incorrect ticketing (e.g., UPC, item number, description, color and/or size codes).
• Purchase order violations. As exemplified by Walmart’s OTIF policy, retailers don’t take kindly to orders that deviate from the original purchase order. If the order arrives looking different from what the retailer expects in any way, you can expect a chargeback for each violation. Additional purchase order ‘NO-NOs’ include failure to acknowledge receipt of the order in a timely fashion, failure to ship the right product or product quantity, and failure to abide by the purchase order ship windows set by the retailer.
• Transportation violations. Another key area in which vendors may fall short of retail compliance requirements is transportation and transportation routing. If an order is shipped to the retailer too early or too late, a chargeback will ensue. Chargebacks will also apply if the pallet configuration is smaller or larger than specified by the retailer purchase order (such issues make it more difficult for the retailer to optimize freight on its own trailers) or if the wrong product is included in an order.
• Late/Missing/Invalid ASN. This violation garners a charge of anywhere from a few dollars per carton up to hundreds of dollars per ASN. When retailers are reliant on their 856 for notification and receiving of products, a late, missing, or invalid ASN is assessed a penalty quickly. The ASN provides a productivity benefit by keeping the inbound handling and receiving processes moving swiftly throughout the retailer’s DC.
• Order Fill Rate. Violations attributed to fill rate shortages or unauthorized item substitutions can be assessed a penalty of 5%-15% of the merchandise cost. On the flip side, shipping an overage against the ordered quantity doesn’t warrant a financial penalty but the vendor has basically given the retailer additional product at their expense.

How to Prevent and Challenge Chargebacks

Your goals are twofold: prevent chargebacks from occurring and successfully challenge them when they do.

Chargebacks impact multiple departments, including Logistics, Sales, and Accounts Receivable, but there is often no clear owner responsible for vendor compliance. Assign a dedicated compliance lead or partner with a third-party logistics (3PL) provider to manage retailer requirements. A 3PL experienced in retail compliance can track multiple routing guides and proactively address chargeback risks.

Retailers expect strict adherence to their supplier and routing guides. Key areas to focus on include:

• Accurate ASNs: Ensure timely and correct transmission of shipping details via EDI. Many chargebacks stem from late or incorrect ASNs, as retailers rely on this data for planning.
• Labeling Standards: Use scannable, defect-free UCC128 labels and product ticketing to avoid compliance violations.
• On-Time Shipments: Work closely with transportation providers to meet delivery windows.

Retailers do not always issue chargebacks correctly. Suppliers should challenge chargebacks when there is evidence of compliance. Through extensive experience working with retail compliance, Weber Logistics recommends the following best practices:

• Document Everything: Keeping thorough records is critical to disputing chargebacks.
  • If a retailer claims an ASN was received late, suppliers should provide time-stamped EDI records confirming it was sent on time and acknowledged by the retailer.
  • If a retailer alleges a shipping discrepancy, suppliers should provide a signed and dated bill of lading (BOL) proving full order fulfillment.
  • If a retailer’s carrier arrives with inadequate truck space, suppliers should take photographs as evidence that the issue was beyond their control.
  • If a retailer claims excessive driver detention time, suppliers should present driver check-in/check-out to counter the claim.
• Proactively Share Information: Documenting compliance issues in real time can help prevent chargebacks before they are issued. Suppliers should flag and report issues as they arise, not retroactively when a penalty is imposed. This can include logging tickets in the retailer’s portal, submitting supporting documentation, and notifying retail carriers in advance about potential delays.
• Dedicate Resources to Chargeback Management: Since chargeback costs can be substantial, some companies dedicate personnel specifically to managing disputes. Others partner with experienced 3PLs like Weber Logistics who have vendor compliance teams that monitor routing guide changes, document order histories, and assist customers in fighting chargebacks effectively.

Using Chargebacks to Improve Supply Chain Operations

While frustrating, chargeback penalties highlight opportunities for supply chain improvements. For instance, missing a retailer’s shipping window results in both chargebacks and lost sales. If your product isn’t on the shelf when customers expect it, they may purchase a competitor’s product instead.

By analyzing chargeback data, you can identify recurring compliance failures and take corrective action. Investing in better EDI systems, improving warehouse processes, and partnering with a compliance-focused 3PL can all significantly reduce chargeback exposure.

Turn to Weber Logistics for Vendor Compliance from the West Coast

Retail chargebacks are a reality of doing business with major retailers. However, suppliers can take proactive steps to prevent non-compliance, challenge invalid deductions, and use chargeback data to refine their supply chain operations. If your business is struggling with chargeback penalties, an expert 3PL provider like Weber Logistics can help navigate the complexities of retailer compliance and minimize costly deductions.

Contact Weber Logistics today for expert retail compliance support.