More common with North American retailers than others around the world, a retailer compliance chargeback is a fee imposed by a retailer on a supplier (you) due to non-compliance with the retailer’s specified guidelines. These guidelines could range from shipping, labeling, and packaging instructions, to order accuracy and delivery punctuality. When a supplier fails to meet these standards (or is perceived to have failed), the retailer may issue a chargeback as a penalty for non-compliance.
Chargebacks are most often issued without any warning or discussion and simply result in a credit memo generated by the retailer on its own behalf and your next invoice will be short paid by that credit amount.
Retailer Chargeback Examples
Here are some real-life examples of situations that can trigger retailer chargebacks:
- Shipping and Packaging Non-compliance: Retailers have specific guidelines on how products should be packaged and shipped. For example, if a supplier fails to use the correct type of pallet or fails to label boxes properly, the retailer might issue a chargeback. These fees can range from $50 to $500 per occurrence depending on the retailer’s policies and what you agree to in your contract with the retailer.
- Late or Early Shipment: Retailers expect orders to be delivered within a specific time window. If a shipment arrives too early or too late, a chargeback may be issued. These chargebacks can vary greatly in amount, but it’s not uncommon to see penalties of several hundred dollars per late or early shipment.
- Incomplete or Incorrect Documentation: Proper documentation is crucial in retail operations. If a supplier fails to provide complete or accurate paperwork (e.g., incorrect EDI documents, missing or incorrect shipping labels), the retailer might issue a chargeback. These penalties can range from $10 to $1,000 per occurrence.
- Shortages or Overages: If a supplier ships less than what was ordered (shortage) or more than what was ordered (overage), the retailer could issue a chargeback. The amount of the chargeback often corresponds to the cost of the missing product or returning the extra products, but additional penalties may also be applied.
It’s important to note that the specific amounts and conditions for chargebacks can vary widely among retailers. They are typically spelled out in the retailer’s vendor guide or contract. As such, it’s crucial to have a thorough understanding of these documents and to have a team like Rush Order on your side to help navigate and dispute these potential chargebacks.
Countering Frivolous and Mistaken Chargebacks
Chargebacks can often be frivolous or mistakenly issued. Some retailers are bigger culprits than others and we encourage our clients to chat with us at the onset of a new retailer relationship so we can help set expectations.
At Rush Order, we’ve seen firsthand how these unwarranted penalties can impact a business’s bottom line, and we’ve successfully disputed numerous such chargebacks on behalf of our clients.
Here are some real-life examples of how we’ve stepped in to correct these errors:
- Carton Labels Missing: One of our clients received a hefty chargeback for “missing” carton labels, which would have caused significant disruption in the retailer’s inventory tracking and movement of products out to store shelves. However, Rush Order had photographed each carton as it was loaded onto the truck. By providing these photos, we were able to prove that the labels were indeed present at the time of shipment. After reviewing the evidence, the retailer reversed the chargeback, saving our client from an unnecessary financial setback.
- Product Shortages: In another instance, a client was hit with a chargeback for alleged product shortages. Rush Order, however, had diligently recorded the serial number of each item sent to the retailer and had photographic evidence of the shipment, including neatly stacked full pallets of product on the truck at our warehouse loading dock. Upon presenting this data, the retailer recounted the inventory in its warehouse, acknowledged the mistake, and the chargeback was overturned.
- Late Delivery: A client was once charged with a considerable fee for allegedly late delivery. However, Rush Order kept detailed records of the shipment, including the pickup, transit, and delivery times. By presenting the carrier’s timestamps, we were able to demonstrate the delivery was in fact made within the prescribed delivery window, leading the retailer to rescind the chargeback.
- Non-compliant Packaging: In a different case, a client was charged for using non-compliant packaging. Rush Order, having maintained detailed records and video footage of the packing process, was able to show that the packaging used was in full compliance with the retailer’s guidelines. As a result, the chargeback was successfully disputed and reversed.
These examples underscore the importance of meticulous record-keeping and thorough understanding of retailer guidelines. You have to assume that every shipment you send to a major North American retailer will be subject to a chargeback of some kind.
This guest blog post was provided by Rush Order, a nationwide 3PL warehouse and fulfillment company. If you are looking for a trusted partner to help ship your products anywhere in the US, please contact Rush Order today.
