Chargebacks - Deductions - Invoice Offsets – Fines: AVOID Them!<br />Yes, I am bringing up charge backs again. The infamo...
Scale – many companies often “see” a chargeback come through and discount it as “just” one violation.
Understanding charge back process – this is an area few companies understand to the degree necessary. Ideally, you have t...
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Preventing charge backs in retail

How to prevent - and why it is important to prevent charge backs from your retail clients.
Published on: Mar 4, 2016
Published in: Business      Technology      

Transcripts - Preventing charge backs in retail

  • 1. Chargebacks - Deductions - Invoice Offsets – Fines: AVOID Them!<br />Yes, I am bringing up charge backs again. The infamous offset expense that usually ends up wrecking the profitability of many retail suppliers is something which needs to be discussed continually. For many suppliers, keeping up with a retailer’s compliance guides is a challenge. For many, seeing a single order with a retailer fine or charge back attached to it may not seem like a big issue – add them up at the end of a quarter or annually and you will see 3-4% of your sales evaporate. <br />Get the picture of the “mean” retailer out of your head. They are typically larger organizations and through no fault of their own can develop a certain bureaucracy. One reason for this is the need to insure business systems operate and this includes how and under what conditions product comes into their business environment, not to mention the data needing to flow smoothly to insure equally smooth operations. The charge back or offset expense in many cases doesn’t cover the retailer’s actual costs in researching and correcting the discrepancy. While often they may seem punitive – put it out of your head, knowing that you can overcome the issue.<br />There are a host of different fines many retailers can apply under various circumstances including concealed shortage, wrong item quantity and so on. Data-related errors like wrong item quantity across purchase orders, shipment notifications (ASNs), and invoices can prevent getting product to consumers and cause deductions costing suppliers up to 3% of gross sales. For suppliers, the research needed to reconcile the process can delay payments, increasing Days Sales Outstanding (DSO) by a factor of three or four. And managing chargebacks manually ties up staff for both the retailer and vendor, slowing data access and blocking teams from working together to fix the underlying problems. Without the shared data and visibility to correct many error types, suppliers are left with few options other than to pay the deductions.<br />On a daily basis, there is always a lot to do, charge backs 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 (Charge backs) rescinded or get the problem(s) corrected. <br />Reasons why many companies lose to charge backs:<br /><ul><li>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.
  • 2. Scale – many companies often “see” a chargeback come through and discount it as “just” one violation.
  • 3. Understanding charge back process – this is an area few companies understand to the degree necessary. Ideally, you have this mapped and documents and continually monitor how it changes per trading partner. Target is not Walmart – the requirements and process involved should not be treated as the same.
  • 4. Remediation – many companies will receive a charge back, make the correction, then two months later fall victim to the same issue either with the same retailer or a new one. </li></ul>Think proactively. A program to mitigate charge backs, is simple to implement has absolute ROI (Return on investment) and takes no time to setup. Here are some quick steps:<br /><ul><li>Organize a team with executive leadership. The team should have IT, Sales, Accounting, and Logistics personnel (As a start).
  • 5. Get on board with a reporting solution to track your order-to-cash process. Use it to measure your invoicing and shipping accuracy in addition to other metrics. Make sure the right people are subscribing to alerts.
  • 6. Insure your guidelines are up to date – assign someone to check. Have each department document the workflow for each client through their department.</li></ul>You don’t have to write books on the subject. Just get basics down on paper. Start to understand what your resources are, weak areas, etc. Build on it. For example does your shipping department know which transport companies are acceptable for each trading relationship? Who is responsible for updating your routing guides? What is the first thing you do when you receive a charge back from retailer “X”?<br />There is on-demand software available which will all but guarantee that your charge backs diminish and if you work to solve each issue, ultimately remove charge backs from your company. By tracking and monitoring all inbound and outbound transactions against your customer’s requirements you can identify problems before they become charge backs. <br />Imagine a solution which monitors each 850 coming into your company, insure you have sent out a 997 for it, then compare the PO item quantities with those on the corresponding 856 ASN and 810 Invoice and not discrepancies in the following 820 remittance advice. When you are alerted to exceptions, you are able to wade through the minutia to the actual root of the problem, correct it and move on – that is charge back avoidance. View the raw data, reports, quick dashboards, subscribe to alerts! Each series of documents, strung together to form a process which can be drilled down into to see the entire history of an order and measure it against anticipated standards. Use it to simplify deductions research when negotiating deductions. Reverse score card clients or score your internal departments and truly measure improvements. <br />Before investigating too much, first understand what charge backs cost your company.<br />If we take an average retail supplier doing $25 million in sales annually we can see they may have three brick/mortar retail clients which make up 60% of their sales ($15,000,000). Conservatively – let’s say you only get the occasional charge back and your lost revenue as a result is only 1.5%. That equates to $225,000 annually or $18,750 per month. This justifies meeting a couple times a month, knowing your exposure and taking steps to make corrections, right? Five resources from your company, meeting once a week (To start) can cost a lot – maybe $3,000. A solution to manage end-to-end transaction, monitor and report on discrepancies should cost approximately $4,000 to set up and $1,000/month. That’s an overall investment of about $52K (This includes internal resources) to correct a problem which may be stealing a quarter of a million annually from your coffers. It sounds to me like there may be an ROI in there somewhere…<br />Reducing charge backs 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 charge back type out of the equation by enabling you to “see” all errors and correct them before they are an issue (Charge back) 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. <br />You can eliminate charge backs, shorten your days’ sales outstanding, free up working capital and profit even in this economy, provide you get organized and take action. <br /><br />

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