The Inovis Blog

I was out at NRF last week talking to retailers and vendors about their key business challenges. Their was a common theme amoungst the vendors with whom I spoke. Chargebacks! Deductions! Invoice Offsets! Fines! They all had a different word to describe it, but it was clear that the bottom line pain felt by most organizations was acute. Despite the magnitude of the pain (several of the vendors with whom I spoke had 2%+ of sales tied up in preventable chargebacks), few vendors were doing much about the problem. This puzzled me, so I started digging into the reasons why they found the challenge of dealing with chargebacks so hard. In general, the common themes were:

• Scale of the problem - They were seeing thousands of chargebacks, many of which were too small to invest time in individually.
• Complexity of the problem - Every retail customer has a different set of deductions.
• Rate of change - Across their customer base they see multiple changes a week to routing guides, edi specs, and vendor manuals.
• Organizational coordination - Internal efforts to “fix the chargeback problem” were too challenging to manage, because so many groups (A/R, logistics, IT, B2B, sales, and others) have to be involved.
• Lack of executive “actionability” - Of the vendor executives with whom I spoke, their was a common refrain. The chargeback problem was amorphous. There was no clear problem to target and put time, resources, and dollars behind to have an impact.

I felt their pain. In response, I wanted to provide five strategies that can be applied as a retail vendor to successfully reduce and eliminate your chargeback issues.

Strategy 1: Know your retailer’s requirements

While it may sound simple, with the rate of change to retailer requirements being what they are, it is critical you keep up do date on the latest changes flowing out of your customers vendor mangement and logistics groups. Monitor every vendor website weekly. Note the changes that get made. Formally assess the impact of each change on your operations (you may find they you already comply or that the change does not apply to you). If it is a data or process related change, test historical data against the new requirements to figure out whether this is a large problem for you or a small problem. Once you decide to implement the change, track the progress of the rollout across the departments that must be involved in implementing it. Be sure you are tracking the effective date of the change, so you can prioritize resources and manage to the date your customer will start charging you for non compliance.

Strategy 2: Establish a formal Chargeback Lifecycle

Figure out how you handle each type of chargeback you commonly receive. Understand the steps you must go through to determine whether you will pay without question, research, accept or dispute. Figure out the individuals and groups that will have to collaborate with you. Start tracking how long it takes, on average, for each of them to provide you the information or action you need to move the chargeback resolution process forward. Make sure you are aware of how long you have to dispute each deduction. Track each chargeback through this process so the organization becomes trained to support chargeback avoidance activities.

Strategy 3: Build out your “reactive” defenses

A late ASN or an ASN that isn’t usable by your customer’s WMS system are easy problems to avoid, but make up a huge chunk of a typical vendor’s chargebacks. Put in place tools to alert you when a critical route by date or PO cancel date is approaching, but where an ASN has not yet been sent to your customer. You can go a step farther by putting in place a quarantine zone, where data that fails some or all of your retailer requirements are held for a short period of time, allowing you to look at the potential issue and make a judgement about whether to release or replace the bad data. You can also build a “rapid research” system, where customer support can quickly research customer questions and provide the information needed to show that a chargeback wasn’t your fault. Got a missing ASN deduction? Query your rapid response system to find the ASN and the receipt acknowledgement your customer sent to you.

Strategy 4: Build out your “proactive” defenses

Get ahead of the daily firefighting by figuring out where your performance is weak for a specific customer or where you are at particular risk of future chargebacks. The easiest way to accomplish this is to score card yourself. measure your key customer kpis that will influence your chargeback rates and vendor scorecard performance… on time delivery, order fill rate, usable ASN rate, etc. This will tell you where you need to invest your time to get better, and give you a heads up on how your next vendor meeting will go. Remember, your customer has this data already. You might also do well to measure your chargeback exposure. What would happen if your customer went to 100% audits tomorrow? For what percentage of potential chargebacks is your customer actually charging you back? Understanding your risk is important to avoiding a huge…and unexpected revenue shortfall.

Strategy 5: Remediate!

The most important thing you can do to minimize chargebacks is to leverage what you learn to fix the root cause of problems. If you manage your chargeback lifecycle, aggregate your chargebacks, and scorecard yourself, you will quickly get a holistic picture of your chargeback health. You can start to understand this issues that are costing your organization the most money. Start at the top and invest your limited resources in solving the problems that can save you the most. You’ll find that because you can quantify the business impact, executive support and the associated resources required is easier to get.

All of these strategies can be implemented without partners or products. They will all provide you with excellent value. Of course, Inovis has a full suite of chargeback avoidance applications for the smallest vendor to the largest.

Learn More about Chargeback Avoidance>>