Reducing Chargebacks

Chargebacks (often referred to as "expense-offsets") are financial penalties for non-compliance with your customer's requirements. Retailers issue chargebacks because vendor noncompliance disrupts operations and creates an additional expense for the retailer. Therefore, retailers create "expense offset policies" that are intended to recover the additional cost incurred by the retailer due to vendor noncompliance.

Unfortunately, EDI-related chargebacks have become profit-centers for a lot of retailers. Chargeback fees vary greatly from customer to customer. A $100 penalty for an EDI document containing errors would not be uncommon. Most of the retailers provide a charge-back fee schedule. Chargebacks are usually deducted off the check payment.

Some common challenges that organizations face with chargeback problems are:

Strategies To Reduce Chargebacks

Cross-Functional Teams

Deductions are a company-wide issue. Do not conduct chargeback research to play the "blame game" instead make sure that internal operations and computer systems are corrected and employees are trained.

The Credit Research Foundation (CSM Communications Co., Inc., 2003) conducted a customer-deduction survey of 280 companies across 22 industries. The finding was that 75% of those companies that used cross-functional teams to manage deductions and compliance violations have reduced the number of deductions received:

The following graph shows the biggest internal challenges for resolving chargeback issues:

Compliance Steering Committee

One of the easiest ways to gain cross-departmental cooperation is to give them a stake in decreasing deductions. Cooperation of almost all departments will be required in order to achieve success in reducing chargebacks.

The actual personnel to be included on the committee may vary from company to company. This group should include managers of departments, but it should be flexible enough to include members who might not be classed as managerial. No one understands a give business procedure better than those who are doing it.

The list of duties for the members may be very general, but it should be seen that the Compliance Steering Committee has the responsibility of building and maintaining the customer compliance strategy. The following is an example of a responsibility assignment matrix of cross-functional deductions team players:

The compliance coordinator must review all of the existing customers' routing guides and vendor manuals. All the other roles and departments should review their section of the routing guide and vendor manual. When the sales department wins a contract with a new customer the compliance steering committee must immediately react by mastering the routing guides and vendor manuals.

Chargeback Tracking and Management

Reconciliation of chargebacks can be a difficult task as chargebacks may reflect shipments that were made several weeks ago. Therefore, it is important to have a good chargeback tracking and management process in place.

Develop a process to find out about deductions as soon as they are issued. For example, JC Penney sends daily email notifications about EDI ASN deductions to the email address in the PER-04 segment.

Once the deduction information is received a process must be in place to resolve the chargeback and get the right functional team members involved. Create a dispute resolution process to suit your company's requirements. The following is an example of a dispute resolution workflow:

A chargeback tracking database should be created to track the status of each deduction. This can be a simple spreadsheet with the following fields:

Preventive Action List