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Manage and Combat Charge Backs (expense-offsets)

chargebacks

Manage and Combat Charge Backs (expense-offsets)

I am bringing up charge backs again.  The infamous offset expense that usually ends up hitting the profitability of many retail suppliers is something which needs to be discussed on a regular basis.  For many suppliers, keeping up with a retailer’s compliance guides is a challenge.  A single order with a retailer fine or charge back attached to it may not seem like a big issue, but if they continue many see about 3-4% of their sales evaporate as a result.   

There are different fines many retailers apply under various circumstances including concealed shortage, wrong item quantity and so on.  Data-related errors like wrong item quantity, across purchase orders, advanced shipment notifications (ASNs), and invoices can prevent getting products to consumers, and cause deductions costing suppliers a noticeable percentage of gross sales (Think 3-4% range).  The research needed to reconcile the process can delay payments, increasing Days Sales Outstanding (DSO) by a factor of three or four.

On a daily basis, there is always a lot to do, chargebacks can often seem like a continual fire to put out.  It seems like this because when they occur, they can come in waves e.g. the lag between finding, understanding and fixing the underlying issue.  But that hectic scrambling doesn’t need to happen provided you have the tools in place to help prevent them.  And when they do occur, have the tools to get them (Chargebacks) rescinded or get the problem(s) corrected.     

Reasons why many companies lose to charge backs:

  • Executive direction – many executives don’t have operational experience to see that charge backs often must be addressed by IT, Accounting (A/R), logistics, sales and other personnel and not just one discipline.  That makes it a company-wide issue which must be coordinated.
  • Scale – many companies don’t have visibility centrally to the full problem.  For example, EDI managed centrally can impact multiple divisions.  For example, if they’re using the same ASN map + pick and pack process, but separated reporting in critical places.
  • Understanding the chargeback process – this is an area few companies understand to the degree necessary.  Ideally, you have this mapped, documented, and continually monitor how it changes per trading partner.  
  • Remediation – many companies will receive a chargeback, make the correction, then two months later fall victim to the same issue either with the same retailer or a new one. 

 

Be proactive.  A program to mitigate charge backs, is simple to implement, has absolute ROI (Return on investment) and takes no time, budget to set up.  Here are some items to consider:

  • Organize a team sponsored by relevant executive leadership.  
  • The team should have IT, Sales, Accounting, and Logistics personnel (As a start).
  • Start working on identifying which are your most common chargeback types and get a game plan going on corrections and follow up continually.
  • Ensure your guidelines are up to date.
  • Have each department document the workflow for each client through their department as it relates to those guidelines.
  • Find out how to appeal charges – not all will be accurate – work with them.

The charge back, or offset expense in many cases doesn’t cover the retailer’s actual costs in researching and correcting the discrepancy. And unless your company tracks your charge backs, it will continue to be a drain on your profits and your relationship. 

Reducing chargebacks will speed up your accounts receivable.  If we take one of the most common errors: wrong item quantity which is by itself responsible for millions in lost revenue across the supply chain.  If we take this one chargeback type out of the equation by enabling you to “see” all errors and correct them before they are an issue (Chargeback) then you can reduce days sales outstanding by half.  Consider that at any time 10-25% (This is not uncommon) of your sales are in dispute – if you cut that in half you have just freed up as much as one million in working capital (Assume $15 million gross sales) which could be spent in any number of different areas. 

You can eliminate chargebacks, shorten your days sales outstanding, free up working capital and profit even in this economy, provided you get organized and take action.   

 

 

 

 

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