What are Retailer Chargebacks?

  1.  Retailers charge manufacturers & distributors fees for any type of perceived problem; these are called "chargebacks".
  2. There may be punitive charges for paperwork not matching such as Purchase Orders and Invoices.
  3. A chargeback can happen for any type of packing or transportation issue that retailers record (e.g. late shipment).
  4. Damaged shipments or goods not received cause chargebacks.
  5. Not shipping within specified time frames results in a common type of chargeback.
  6. Retailer chargeback processes are automatic and systematic, and apply charges at lightening speed.
  7. Often, retailers' own faulty inventory management processes are to blame; manufacturers and distributors can dispute chargebacks and deductions manually (slow & inefficient) or with automated processes (fast & efficient).
  8. Using automated chargeback management results in positive ROI for your business and will cause retailers to pick on someone else.

Manufacturer & Distributor Problem

Shortage, Compliance, and Pricing Deductions Defined

What exactly does “chargeback” and "deduction" mean? In our context, it’s not consumer protection from fraud, but fees determined by large retailers such as Amazon or Walmart against their vendors for perceived violations in the realm of shipping or compliance. 

Identifying and resolving common issues on the front end to avoid chargebacks recurring in the future can be helpful. Although each chargeback and deduction is unique, most fall into one of three categories: shortages, compliance, and pricing and commonly fall into one of 5 areas

  • Purchase Order Issues
  • Receiving Issues
  • Packing Issues
  • Advanced Ship Notice (ASN) Issues
  • Transportation Issues

Even when best efforts are made to prevent chargebacks from occurring in the first place, they are inevitable. This often a means more profit for retailers as they do not make the chargeback and deduction appeal process easy. This leads many vendors to simply treat them as a cost of doing business.

iNymbus undertook a study to find out, in fact, which Amazon chargebacks are most recoverable!

Download PDF Amazon Chargebacks  Recovery Percentages Study

The Problem

The Struggle with Chargeback Management

Chances are, the majority of suppliers find the chargeback and deduction portals and procedures frustrating, with changes implemented seemingly randomly, and governed by increasingly complicated algorithms. Vendors speculate that retailers like Amazon and Walmart make processing chargebacks deliberately complex by causing issues vendors face every day dealing with chargeback processing, to make it harder for vendors to dispute chargebacks; thereby increasing their own profit margins. 

Large retailers require their suppliers to upload claims and backup documentation into their retailer portals. It’s a detailed and time-consuming process because each claim has to be organized and uploaded. Usually, this means training humans to gather, assess, and upload claims to retailer portals manually. Every portal is different, from navigation to data and documents required, and then there's compilation and order of the documents necessary for each claim package.

managing chargebacksIn a study done on Warner Brothers, the time and resources involved in accomplishing this process manually showed that it usually took a very motivated and trained employee between 5 to 8 minutes to organize a claim and 5 to 7 minutes to upload a claim into the portal. That's a total 15 minutes or more per claim, and there are usually hundreds or thousands of claims in a given month.

In another study on a Walmart apparel distributor, it was calculated that each deduction claim took 8 to 15 minutes to manually complete.  At almost 3,000 deductions quarterly, that's 400+ manpower hours spent, just trying to recover losses!

Processing chargebacks from the Amazon’s and Walmart’s of the retail space creates departmental pressure, is tedious and time consuming, and does not seem to be worth the human capital in many cases. 

Download Preso PDF "Time & Cost Benefits of  Robotics Processing Amazon Chargebacks" Study

Ready to get started? Click Here!

Managing Chargeback Disputes Manually Doesn't Cut It

As a Supplier's volume grows (a fantastic problem), it is imperative to immediately implement a strategy for managing chargeback disputes that will also grow with this volume. In the beginning, these simple steps will help with simplifying chargeback management:

  • Plan to hire seasonal temps
  • Organize chargebacks into categories by Issue Type and related documentation
  • Establish written chargeback processing SOPs
  • Utilize standardized spreadsheets to organize processing and research
  • Provide close supervision to answer questions and troubleshoot processing issues
  • Establish a chargeback threshold - minimum amount that is worthwhile for a team member to process.

Quickly, volumes can get out of hand with thousands of penny chargebacks adding up to thousands of dollars. Solving these problems is an ongoing struggle. Suppliers’ and Manufacturers’ accounting departments are constantly trying to figure out what magic mix of solutions will finally beat deductions & chargebacks down.

chargeback management system

But these traditional solutions will not fix the problem. Retailers such as Amazon, Walmart and Target are more automated than everyone and have exceptional resources at their fingertips and use systems, computer automation and robots to raise chargebacks and deductions. Meanwhile, distributors are left with manpower costs and mental fatigue surrounding the in-house manual processing of chargebacks and deductions.

 

Download Amazon Education PDF 8 Processing Issues With Amazon Chargebacks

The Ideal Solution: Chargeback Automation

There IS a better way: Automated Chargeback Management

 At this point, the only way to dispute chargebacks and deductions efficiently and successfully is in automating chargeback responses and using similar robotic technology that retailers like Amazon use to create the chargebacks in the first place. It is 100% possible to take your company's SOP and automate the document matching and uploading, the algorithm calculations and data entry required for managing chargeback disputes.

Using cloud robotic automation for chargeback management is a unique solution.  The truth is that it is possible to fight technology with technology and win, as was the case for a large book distributor faced with continued profit loss as a result of Amazon chargebacks:

chargeback dispute management

Book Distributor Amazon Deduction Case Study

In about 90 days, a book distributor implemented robotic processing and brought their chargebacks to ZERO. They found themselves current on Amazon chargebacks for the first time EVER, and the cost was minimal compared to traditional manual processing.  Truly, automated chargeback management is the only possible way to win with retailer chargeback and deduction disputes, at any kind of volume. 

To no one’s great surprise, Amazon is the top retail outlet for book distributors. Amazon was posing increasing problems for a large book distributor by rapidly eating into their already razor thin margins with deductions and chargebacks. The key complaints were:

  • Amazon was charging back some amount on nearly a third of the invoices submitted.
  • These chargebacks were frequently only pennies on the dollar, but in total amounted to
    substantial hits to margin.
  • The high volume of the book distributor’s transactions created thousands of chargebacks every
    single month.
  • Amazon required specific matched paperwork be submitted in order to dispute the chargebacks.
  • The paperwork needed was not readily available to attach to transactions on Amazon’s portal.
  • Amazon’s chargeback portal was not simple to use. At all.
  • Every single chargeback disputed could take between 5 minutes to 15 minutes to submit.
  • The book distributor was not able to process the Amazon chargebacks fast enough to fall within
    the allowed dispute window.
  • Seasonality, after the holidays, made it insurmountable to manage chargebacks as the volumes
    were crushing.

Sound familiar?


Manual Chargeback Performed by a Trained Analyst

An analysis showed what was required for manual chargeback dispute management at this book distributor, and we found that even a very motivated and trained resource needed on average between 5 to 8 minutes to organize a claim and 5 to 7 minutes to dispute a claim in the Amazon portal. That’s a total of 10 minutes to 15 minutes per claim. The cost per manually processed claim can be easily calculated.

The Solution: An Automated Chargeback Management Tool

A unique solution: Cloud Robotic Automation for Amazon dispute chargeback management that quickly and automatically processes chargebacks. In about 90 days, the book distributor implemented robotic processing and brought their chargebacks to zero. They found themselves current on Amazon chargebacks for the first time EVER. The cost was minimal compared to the manpower costs and mental fatigue surrounding the in-house manual processing of Amazon chargebacks and deductions. Prior to the implementation of cloud robotic automation, all they did was firefight. Now they have time to work with downstream departments like Logistics and Warehouse to discuss and streamline processes, and they are strategizing with Order Management to get a handle on real pricing and back order issues. iNymbus chargeback management solutions proved to be a “must” for our book distributor, in order to keep up with and get ahead of the Amazon portal. The cost savings in time and resources made our automated chargeback management tools a no brainer.

Download Amazon Case Study PDF  A Large Book Distributor Eliminates Chargebacks!

But Amazon isn't the only big retailer causing suppliers and distributors deduction headaches. 

Walmart Chargeback Management: A Real Problem

Walmart is constantly deducting money from vendor invoices, and for suppliers or distributors this could equate to thousands of chargebacks per month. The list of reasons why, also known as deduction codes, consists of nearly 100 possible infractions, all of which conclusively reduce your bottom line. When the volume of these deductions is high and they constantly stream in, most distributors simply don’t have the resources and time required to file a claim against every charge. It’s an overwhelming mess that can cost thousands of dollars a month. We looked at two different distributors, each with the same problem: thousands of Walmart deduction claims.

Distributor 1: Video Game Distributor

A direct distributor of video game consoles, accessories, games, and more, this distributor provides retailers nearly every type of product related to the video game world. With Walmart in particular, things had gotten out of hand on the chargeback management front, with the distributor processing up to 1,500 chargebacks monthly. The volume was so high that it required one full-time employee and two interns dedicated to working solely on Walmart chargeback claims to get the job done. To add further stress, Walmart policy states if a deduction is outstanding for two years, they will no longer accept the claim. The distributor had fallen so behind, they were filing deductions with just days to spare. Time management was a major challenge as any issues that may arise with documentation or otherwise, would result in losing the chance of recovering the funds.

Our video game distributor was behind an entire 2 years behind in Walmart chargeback management, but was able to implement automated chargeback mitigation in just 2 weeks and completely catch up on their chargebacks backlog. Today, they continue to process up to 1,500 charebacks per month, all with iNymbus' automated chargeback management services.

Distributor 2: Apparel Distributor

As the producer and distributor of 100+ top sleepwear and loungewear brands, this distributor knows a thing or two about retailer chargebacks. Walmart was particularly burdensome. To more easily deal with Walmart’s volume of chargebacks, a quarterly settlement arrangement was set up between our Distributor and Walmart. The distributor manually completed a spreadsheet with the thousands of open claims, sent it to Walmart, and waited several months for them to review and respond with a proposed settlement amount. This approach worked decently for awhile, until the settlements being offered begin to come in unacceptably low. This left the distributor no choice but to dispute every claim individually. With around 3,000 claims needing to be disputed every quarter, and each claim taking 8 to 15 minutes to complete, there simply was not the man power to even attempt disputing manually.

Download Case Study PDF  Walmart Distributors Solve Deductions Problems

 

Fighting Customer Chargebacks and Deductions

Recently, iNymbus interviewed Tony Warfield, Vice President of Credit Services and Heather Reso, Senior Director of Credit Services at D&H Distributing. We asked and they answered. Why did you use automation to permanently solve your deduction and chargeback issues with your shippers?

Q: Before you had automation to process deductions and chargebacks, what was the day-to-day or triggering event that made you say, “You know, maybe there’s a better way?”

Tony Warfield: You may have heard of a company called Walmart. Obviously the volumes are incredibly high with the number of suppliers they have, and they are incredibly complex. They would email us these freight issues, and we would basically take data from the email, typing into one system, inputting into another system, and typing into another system. We started looking for some sort of simple, automated solution to manage the kind of repetitive nature of deductions.

Download to read D&H Distributing chargeback case study.

Heather Reso: Yes, Walmart. It was that particular customer. We’d get an email notification, and it went from about 500 a month to 3,000 a month in about two months’ time. They had changed something in their process or system, and we couldn’t keep up. We had two full-time people working on it, as well as the whole team working overtime, before work, after work, and Saturdays, just to keep up with that volume. And if we don’t get responses from the carriers in a certain amount of time, Walmart would deny the claim and not pay us back.

Q: To solve this problem, how did you go about trying to find vendors to consider?

TW: Well two of them we were already engaged with. One was a company that was a full service AR and cash app, almost a VRP type solution for AR and credit. They offered to create a tool for us, and it turned out to be very, very pricey. So we scratched them off the list. The second company we used for proof of delivery and some other things. They again offered to create this sort of thing, but again it was a larger investment. It’s tough to get ROI when you can hire temps for data entry, and moving paperwork around. It just didn’t make sense.

 HR: We’re distributors with a very lean margin, only about 3%, so cost is really a big factor for us. It had to be something that made sense to our business model.

 Q: In what way did you find the iNymbus solution to be different from the competitors?

Download Amazon Case Study PDF D&H Distributing Eliminates Their Chargeback Problem

We started looking for a solution. In fact, we went to RVCF to look for solutions. At RVCF, we met with iNymbus and requested a product demo. After the Demo, our CFO was ready to sign at the show, due to our deductions processing issues. We absolutely LOVE iNymbus! Great team, great product. Super-fast implementation.

Rebecca Cassel Distributor

We implemented DeductionsXchange because of efficiencies. When you have to communicate with your customers, the big ones have portals, and to communicate and to stay efficient you have to put automated processes in place. These are high volume transaction companies, and everything has now gone back to a transaction level dispute (transaction by transaction) thanks to iNymbus.

Contact iNymbus for a Demo!

See the iNymbus software in action disputing and resolving chargebacks for our clients. Find out if your deductions and chargebacks are at the volume and dollar amount where dispute and resolution automation will pay back in spades. Hint: They usually are.