Fight Back Against Chargebacks – How suppliers can improve service and avoid chargebacks
Chargebacks (aka deductions) occur when a retailer is prevented from receiving and processing an inbound order from a supplier according to plan (aka the service level agreement between them and their supplier). When this occurs, the retailer will pay the supplier less than the agreed upon amount on the invoice to minimally offset the pain caused by the disruption to their operation and maximally for the opportunity cost due to lost revenue.
Common reasons for chargebacks range from inaccuracies in the information about the order, the timing of arrival (early or late) or the quantity delivered being wrong. Most often the retailer received less than they were expecting and sometimes nothing at all – resulting in a backorder. In some instances, backorders are not permitted by a retailer. This is a very costly and unfortunate outcome for both supplier and retailer. Retailers have built programs around the practice of chargebacks that track a supplier’s performance over time. This information is taken into consideration when discussing future sales, promotions and service level agreements.
At one time, only large retailers (think Walmart) had chargeback programs. Today, many retailers have followed suit and put programs in place much to the chagrin of suppliers everywhere. In the age of Amazon, the stakes to play are high and cost of non-performance is higher. Chargeback values can reach eye-popping sizes and wreak havoc on a supplier’s bottom line.
The problem is a vexing one since many of the factors that contribute to the cause of a chargeback occur beyond the supplier’s control – within the ecosystem (e.g. the logistics service providers) they depend upon to make their supply chains move. Many suppliers lack connectivity to their ecosystem partners, and even where connectivity exists, their efforts are undone by the limitations of the quality, completeness and timeliness of the data being shared.
Leading suppliers are addressing the challenge of chargebacks head-on by investing in solutions that streamline their visibility to their ecosystems using best available data. They are applying intelligent rules and advanced analytics (aka ML and AI) to automatically detect potential orders that are at risk of resulting in a chargeback. Lastly, they are using modern technology to collaborate cross-functionally and with their ecosystem partners to avoid/mitigate issues as they arise (aka saving shipments).
Avoiding chargebacks makes for happy customers, sales and service teams alike — and is more than enough reason to invest along with the leaders in the market in ways to “save shipments”. However, the greater business case is the value that results from being able to serve your customer better and the competitive advantage it can create for you in the marketplace.
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