Over the past few years, a host of major retailers have been putting their vendor compliance and chargeback programs into high gear. Any supplier that wants their business must accept a growing list of requirements or face hefty chargeback fees.

 

As big merchandisers rush to impose tighter controls powered by sophisticated, automated systems, vendors have been struggling to adapt. Retailer demands are so onerous that many suppliers simply choose to accept chargebacks as a standard business expense. 

 

As a supplier, you don't want to go down this path. Chargebacks are not just another cost of doing business. They are serious threats to your reputation, your sales margins, and your business model as a whole.

Why Has Vendor Compliance Become So Difficult?

 

Facing increasing competition and an evolving consumer landscape, mass retailers figured out that they are losing a significant amount of sales (to the tune of $1 trillion according to one report) due to stockouts and inefficiencies in supply chain management. 

 

In response, retailers have been pushing for harder compliance and supplier chargeback programs. Many now maintain a system of vendor scorecards that rate suppliers on any number of variables from strict EDI compliance to the way pallets are oriented, stacked or unloaded. Financial deductions for non-compliance can be up to 20% of an invoice. This results in many thousands of dollars in lost revenue annually among vendors-- quite a big blow to their bottom line. 

 

Such chargebacks create a lucrative income stream for retailers themselves amounting to 13% of their revenue. It's not surprising that retailers and online vendors are making every effort to sniff out vendor compliance issues. The stakes are even higher now that the Covid-19 pandemic has both affected consumer behavior and caused so much supply chain disruption. 

 

With supply chains growing in scope and complexity coupled with the speed required to get products to shelves, retailers are also employing sophisticated vendor optimization systems. These smart systems make generating deductions an efficient and automated process.

 

The problem with machine-driven processes is that, like humans, machines make mistakes, too. Simple issues, such as labels turned in instead of out can result in an immediate chargeback. These days, even if you are a big importer or manufacturer, you may be operating under the assumption that preventing chargeback fees is a losing battle. 

You may also believe that you have little leverage to challenge these deductions-- especially in the case that you were at fault. But, the truth is with the right approach your business can successfully dispute and reclaim deductions. It just needs to be a priority, no matter what industry you are in. 

4 Key Strategies to Reduce Retail Chargebacks

There is plenty that your organization can do to bolster compliance capabilities and reduce or even overturn devastating chargeback fees. The following are four fundamental strategies:  

1. Recognize the patterns

 

Part of preventing and fighting chargebacks lies in understanding the causes behind them. Thus, the very first step you need to make is to conduct an audit of your current vendor chargebacks to discover where and when you are getting penalized. This process can give you valuable information about what can be done to prevent these issues from happening in the first place. 

 

The most common chargeback among vendors, for example, is shortages. If your shortage chargeback fees are exceptionally high, then try to discover the cause. Maybe issues are stemming from inventory control or poor back office management. It could be that certain employees need more training. Perhaps communication systems or procedures among different departments need to be revamped. 

 

Even if the audit process takes up significant resources, it will pay for itself many times over in enhanced operational efficiencies.

 

2. Invest in ERP software

 

Even if your organization is already using a Warehouse Management System (WMS), Enterprise Resource Planning (ERP) Software can take your operations to the next level. Both ERP and WMS are essential tools in modern supply chain management, but there are key differences between them. 

 

A WMS is primarily designed to manage and optimize the movement and storage of inventory within a warehouse based on real-time data. This comes in handy when trying to figure out the best physical location for each product, while maximizing available shelving and bin space.

 

ERP software, on the other hand, enables the flow of information between all functional areas of a business and works to automate numerous operational and administrative processes. ERP thus facilitates the optimization of your organization's order entry and processing, purchasing, inventory management, customer relationship management, and accounting, among other functions. 

 

The majority of large and medium-sized wholesalers today require the integration of both ERP and WMS solutions. 

 

3. Establish best practices

Realize that vendors can successfully challenge a portion of the chargebacks retailers send to them. But to capitalize on this process, you need to make chargeback recovery a priority, like any other revenue-generating activity.  

 

This starts with knowing your retailers’ vendor compliance rules inside and out. By considering which violations carry the highest fees, you can figure out what qualities are the most important to your retail partners. Once you know what is most important to your retailers, you can then optimize your operations to stay in compliance. 

Next, you need to make order process documentation a priority. By documenting the events and communications surrounding any given order, you will give your organization valuable evidence when challenging a particular chargeback. You need to determine the best processes for making such documentation. 

 

4. Get professional assistance

 

Even if your organization has an existing chargeback department, you can outsource the job to professionally trained chargeback specialists. At CRL Advisory, we have decades of combined experience to analyze your chargeback reports and determine where chargebacks have been assessed erroneously. We are equipped to file claims on your behalf as well as negotiate with retailer compliance teams. We understand how to balance persistence with respect in order to maximize results while preserving your valuable customer relationships. We never contact the buying teams directly. 

 

The best part is that our cross-functional team can work alongside your existing staff to help to eliminate future chargebacks and maximize chargeback recovery.

 

In short, CRL can help you avoid the passive acceptance of retail chargeback fees. This decision is the most productive and profitable action your organization can make. By proactively taking control of your vendor compliance, you will not only reclaim lost revenues, but improve your operations and your competitive advantage. 

 

 

For more on how you can generate profits, visit www.crladvisory.com or call 212-947-0300