The holiday season has now passed and £17billion worth of goods is said to have been bought online alone, with an expectation for £2.5billion worth of returns to come back. With retailers and suppliers feeling increasing pressure to fine-tune their logistics and supply chain strategies in order to cope with these levels of orders, and a drastic growth in returns, retailers are under intense financial pressure to get shipments right. Every, single time. And as a result, to get the level of performance they need from their suppliers, they are increasingly turning to chargebacks.
Chargebacks are fees that a retailer charges a supplier for errors as a result of not following business guidelines. As such, they are a way for retailers to offset the additional expenses incurred if suppliers are non-compliant. Indeed, major retailers globally have been imposing much tighter controls on suppliers in the recent years to help speed up their supply chain. This squeeze on suppliers is seen in fees for late shipments, wrong bills of lading, incorrect labelling or invalid Advance Ship Notices, and many other seemingly small mistakes that can make a big impact. For some retailers, chargeback fines make up as much as 13% of their account revenue.
While compliance is a must, suppliers still fail to provide retailers with accurate, timely and complete information for a number of reasons. These may include differing compliance requirements per retailer; the sheer number of protocols and systems that need to work together successfully; the number of retail trading partners a supplier deals with on a daily basis; and the overall varying IT capabilities of businesses. With all of these factors combined, there are seemingly an infinite amount of issues that can trigger a chargeback, especially during peak seasons or events.
Getting vendor compliance right will have a positive impact on the bottom line. For many suppliers the only true way to overcome the looming risk of chargebacks is to think long term and put an effective programme in place to manage against them. This should identify what triggered a chargeback, how it was calculated, and a way of indicating that a problem has occurred before the penalty is even received.
Here are seven best practices suppliers can build into a chargeback programme to successfully meet retail vendor compliance expectations:
- Know the cost – Suppliers should be aware of the cost of chargebacks and ensure that chargebacks are properly detailed in their accounts to assess the true scale of the problem. In this case, what you don’t know can truly hurt you.
- Grasp the details – Having insight into individual chargeback information that includes where and when a chargeback occurred and under what circumstances is critical for reducing the chargeback risk. Errors can be missing, incorrect, or non-scannable shipping labels; unauthorised product substitutions; incorrect shipping location or using the wrong shipping provider. Keeping detailed information on file will make it easier to catch small issues that could turn into something larger in the future.
- Get the bigger picture – Use tools that can analyse and review larger chargeback trends at a dashboard level. While there is much to learn in the finer details, technology can help automate the process, helping you to find repetitive tendencies that may have previously gone unnoticed.
- Understand retailers’ requirements – The truth is every retailer’s requirements are different. It is important to make sure you are clear on each and every one’s specific rules and act upon this knowledge by implementing systems that can keep pace with a broad range of retailer trading partner business rules.
- Revisit requirements – It’s good practice to revisit requirements at least annually to keep chargebacks at a minimum over time and break the chargeback cycle. With chargebacks becoming more prominent, retailers’ requirements can change over time with little to no communication.
- Chase-up or refute chargebacks – Should a penalty be improperly applied, suppliers should arm themselves with information to support a change. The more detail you have, the better off you are in the event of a disagreement.
- Invest in automation – Automation can help your business to seamlessly connect to trading partners, rapidly on board new retail customers, identify problems by exception and minimise the use of IT bandwidth. All of these items help to minimise chargebacks in one way or other.
As online shopping and return volumes grow, so do consumer expectations for products to be on the shelf or in the warehouse ready to ship at a moment’s notice. Chargebacks make for a strong incentive for suppliers to keep all the key aspects of their relationship with the retailer in check. However, even though chargebacks are common, there is no reason a supplier should suffer extensively from them. Getting communication right can drive chargeback costs down, but when “perfect” processing doesn’t go perfectly, knowing how, why and where an issue occurred helps to proactively address discrepancies and minimise the time it takes to resolve them—all necessary steps to start 2018 in the right direction.
– Andrew Tavener, Head of Marketing, Descartes Systems Group UK