Although most companies are well aware of potential chargebacks from retailers, many do not have effective processes in place to avoid them. Usually, this is the result of seeing chargebacks as a necessary cost of doing business. Over time, errors on paperwork, fees for missed deliveries, and incorrect packaging can become accepted as normal, impacting profitability.
It’s not just large companies that feel the effects of chargebacks. Small and mid-sized suppliers that may not have the technology, buying power, bandwidth or reporting capabilities of bigger companies feel the impact in other ways – such as the worst-case scenario of product not getting stocked on store shelves.
What are the most common chargebacks?
Retailers have a host of different reasons chargebacks can occur, but there are two main causes:
Missed Scheduled Delivery:
Often, suppliers and manufacturers do not meet the scheduled or contracted delivery window and are forced to pay a fee. The amount for one missed delivery can cost up to 3% of the invoice amount, or a $300 per day late fee. For low margin products, these types of additional costs can become problematic.
Chargebacks can also be enforced when a supplier is not compliant with the retailer’s shipment specifications. For example, if the packaging or pallet configuration is not to specification, the shipment could be rejected. These requirements will vary by retailer, so it is important to know and understand them before every delivery, particularly if it is a new retailer the supplier is working with.
Can Chargebacks Be Eliminated?
Delays and issues with shipping are inevitable, which means some amount of chargebacks will never be avoided. However, with a more focused approach, some chargebacks can be reduced in frequency or magnitude. Larger suppliers might be able to negotiate the amount of fees or other requirements with their retail customers, but smaller ones might not have such leverage. In that case, working with a dedicated team ensures shipments are being managed through all milestones of the shipment lifecycle to improve on-time delivery and mitigate chargebacks.
The best way to reduce chargebacks for companies of all sizes is to be compliant with the retailers’ regulations. Ensuring that the employees who prepare outbound shipments are well trained before they load the trucks, and the correct packaging specifications are clearly documented are important first steps. When chargebacks happen, taking the time to identify where the breakdown occurred and fixing the issue promptly should become standard operating procedure (SOP). Suppliers may also mitigate fees by providing proof of delivery information or other documentation.
Chargebacks can also be reduced by meeting the scheduled delivery appointments and abiding by any Advanced Shipping Notification (ASN) requirements of the consignee. A manufacturer or supplier that has a process to proactively notify the retailer of late deliveries may be able to avoid some fees by rescheduling the appointment. Another way to reduce the number of chargebacks is to track the performance of your carriers and use that information when tendering future loads. Leveraging relationships with retailers can help too. Often, drivers or dispatchers who know dock personnel can help get fees waived or provide personal consideration if a problem comes up. Echo and other 3PLs, can provide tracking technology for you at no extra cost.
The impact of chargebacks on your business’s bottom line is the reason for them to be taken seriously. They should not be viewed as a cost of doing business. Most can be avoided or reduced with sound internal training, documented processes, and by working with a 3PL, like Echo, who has the relationships and expertise you need.
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