Your Guide To Amazon Vendor Chargebacks and Shortages

Amazon Vendor chargebacks and shortages are a large and often costly drain on Vendors. They build up a small charge here, a fine there and soon those tiny cuts on your profits build up drastically.

Amazon vendors can and should avoid enabling these chargebacks and refute any that occur. But it is easier said than done after all – to manually review, process and refute these chargebacks requires time and effort and can become a drain on manpower. To then analyse your operations and identify potential chargeback causes can also become another issue entirely.

But the companies that contest these chargebacks successfully can save hundreds, even thousands in profit every single quarter. In our guide we will not only explain to you where chargebacks originated – but how to avoid and refute Amazon chargebacks and Shortages successfully.

What Purpose Do Chargebacks Serve?

The Issues With Vendor Chargebacks and Shortages

What Are Shortages?

What Are Chargebacks?

How a Managed Service Solution Can Prevent Vendor Chargebacks and Shortages

Your VC Managed Service Solution

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What Purpose Do Chargebacks Serve?

If we want to understand why chargebacks exist, we must look into their history.

Vendor chargebacks are not exclusive to Amazon at all. Mass retail channels of big block chains introduced them during the 1970’s. Huge companies that realised that their supply chains required an enormous amount of logistics to manage and an even larger volume of inventory to ensure maximum profits.

So they turned to technology.

Automated warehouses and sophisticated technology (for the time) in order to effortlessly track and manage product flow with minimal human intervention. These included easy-to-use labels that could be scanned in a moment and shipping notifications detailing what, where and when so that organisation timetables could be affected with ease.

This system would streamline the entire supply chain process and give a greater amount of efficiency to burgeoning systems. But only if it worked perfectly. 

If issues with labels and delivery times arose – who would fix it? This would require manual labour and oversight which then require another two things: time and money.

So these big companies were now faced with a conundrum. They needed multiple vendors selling a variety of products across different industries to comply with their rules, otherwise the entire supply chain would face increased delays and costs.

Enter chargebacks and shortages.

These fines would ensure that vendors had to adhere to their strict business guidelines, or face financial punishment. Tiny ones, to be sure, but if vendors were not careful – they would grow and grow.

The Issues With Vendor Chargebacks and Shortages

In theory they do increase supply chain processes exponentially. Regulations for packaging and delivery do ensure speedier processing which is good for both Amazon and the Vendors as products are available to customers with greater speed.

The problem is the scale of automation.

Computers are amazing things but they are not perfect. Sometimes you have to ask Alexa several times to turn your lights off, maybe your computer is frozen and needs a restart. These issues are fine and fixable, but on a large scale sometimes errors are wrongly attributed to Vendors. This is because the chargeback system is triggered by an automated system that tracks exceptions.

Amazon is the largest distribution opportunity for most Vendors. As a sales channel they can scale up your business to unimaginable heights. However many businesses are unwilling to challenge unfair vendor chargebacks and shortages. It is put down to “the price of doing business” when they could reclaim their revenue and hard-earned profits.

But before we talk about how to fix these issues, let’s take a look at some examples of vendor chargebacks and shortages.

What Are Shortages?

Vendor shortages are simple to define. Essentially, you did not provide the specified number of products that you were supposed to. You have fallen short on your order fulfillment promises. (This may not always be the case as we will explore later on.)

Let’s take a look at some of the ways that this can occur.

Shortage Example 1 

Your business provides excellent products that sell via Amazon. Thanks to a surge in demand for your product, Amazon requires you to scale up your production and provide them with an unexpectedly high volume of your product.

Despite your best efforts to produce an unreasonably high volume of your product, you do not quite manage to meet the full order. It is unfortunate, but these situations do occur.

Now before your delivery arrives at the Amazon centre you naturally have to submit an Advanced Shipping Notification (ASN) to ensure that Amazon knows everything about your shipment prior to arrival. 

Did you change the volume on the ASN? Or after failing to produce the required amount of units, did you send Amazon an updated ASN (Amazon accepts updated ones provided that they are received before the shipment arrives.)

You can easily address this classic shortage example for Amazon Vendors. Vendors can use software that automatically updates ASN and sends to Amazon, and also ensure that every ASN is recorded so that they can successfully dispute any incorrect shortages at a later date.

But we’ll tell you about how to manage that further down.

Shortage Example 2 

As a vendor, you (hopefully) understand the basics of labels on your pallets – so we won’t do a full breakdown of ASIN / SKU / UPC codes or staying LPR compliant in this example. We would run out of time simply covering the anagrams!

Simply put, the codes on your pallets and your items must match Amazon standards. This includes being easily scannable, and that any UPC code on the item must match the UPC code in the Vendor Central database.

So what happens if some of your labels are unreadable? Or they do not match up? Or did you accidentally log products together as a multipack when they should be labelled as being sold separately?

There are a whole host of possible mix-ups that could result in a shortage charge being made. What a vendor can do to avoid this is to use label generating software that ensures LPR compliance and updates your ASN accordingly. 

What Are Vendor Chargebacks?

Vendor chargebacks are incredibly numerous and varied. From PO-related chargebacks involving your Purchase Order, to preparation chargebacks which involve the packaging of your products and pallets.

The amounts differ wildly as well. Some chargebacks will cost you between 1-6% of each carton that causes an infraction, and others will cost up to 25% of each carton! To compound this effect, vendors that repeatedly face infractions will have a lower operational reputation with Amazon – which can increase the cost of every chargeback!

For a Vendor that deals in large shipments of pallets frequently, those costs are too high to maintain for long.

Chargebacks Example 1

Your products must arrive under strict packaging guidelines from Amazon depending upon their contents. These include everything from suitable bubble wrap, to removing clothes hangers for retailers. 

Perhaps your products are loose together – in which case, you box them up according to Amazon’s guidelines. However, your products are also in danger of dust or leakage which means that they must also be bagged.

If you simply box these items without also bagging them – this is an infraction of Amazon’s guidelines and will thus incur a chargeback as a percentage of the cost per unit.

Chargebacks Example 2

Let us say for example that your products are correctly packaged and prepared with all the fuss and necessity required by Amazon guidelines – there could still be an issue.

Suddenly with the amount of wrapping, boxing and other safety layers – your cartons are now in a new size or weight bracket than they originally were by themselves.

Likely not by much – but enough to set them under different processes from Amazon. This discrepancy leads to yet more chargebacks as your cartons are now in a category different to that which was previously stated.

Now both of these vendor chargeback examples are errors in operation. So you could propose that there is no way a single technology could fix these issues – but then you would be incorrect!

How a Managed Service Solution Can Prevent Vendor Chargebacks and Shortages

A managed service solution can help solve the issues of chargebacks and shortages easily, and here’s why.

Firstly, it can challenge chargebacks and shortages without costing you time or effort. When it comes to disputing chargebacks, if you don’t ask, you don’t get. Almost every chargeback is simply an automatic detection of an exception, which means that every time it is disputed, the entire chargeback is analysed.

This means that Amazon withdraw the chargeback without a record of proof on their side.

This is obviously an incredible advantage for companies that are bogged down with multiple chargebacks. Just a single service that can recoup revenue with an up to 75% success rate is critical for Vendors who want to increase their profit margins.

Another advantage of a managed service solution is the ability to analyse your operational processes. This service can not just reclaim revenue, but identify the root causes of vendor chargebacks and shortages. It can then suggest or implement corrective actions that will strengthen your operational process, reduce your PQV and improve your performance to within the Amazon requirements.

Your VC Managed Service Solution

You are in luck – our VC managed service solution makes all of this possible!

It sounds too good to be true, but that’s why we run a free audit on your Vendor Central account. We can analyse exactly what we can regain for you. That’s right, a completely free check before you sign up for anything! Stop letting Vendor Central siphon away your hard-earned profits. Challenge, record and push back against chargebacks and shortages with one simple tool. Redefine your supply chain processing via preventative and corrective measures that improve your business performance.

Click down below to arrange your free audit and find out how much you can save!

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