Mitigating The Rising Threat of Amazon Chargebacks

This post was created with reports, data, and insights from our partners at Cleveland Research Company.

What Causes Vendor Chargebacks?

Amazon requires a lot of its vendors, while also often changing these requirements. Unfortunately many brands struggle to keep up with these updates and experience issues with chargebacks which can add up to become significant costs in the long-term. With insights from our partners at Cleveland Research Company, we put together suggestions around how to manage and mitigate your risk of chargebacks. 

Five Common Types of Chargebacks

There are several types of Amazon chargebacks, and each situation is unique, but the most common chargebacks issues seen are described below:

• Purchase Order: As the most common issue, this often stems from the failure to confirm purchase orders (PO's) in a timely manner, shipping additional units than requested, or disregarding shipping window policies.
• Received Shipments: Any violations in shipping policies such as barcode scanning issues or labels with missing information when shipments arrive to Amazon’s fulfillment centers can result in a chargeback.
• Package Transportation: Chargebacks happen in this case when vendors fail to set up routing requests, if the package does not arrive on time, or if the correct shipping policies and delivery fees are not followed.
• Preparation & Packaging: Chargebacks can occur when items are not properly bagged (polybagged) and packaged.
• Advanced Ship Notice (ASN): Errors or delay in ASN forms will often result in a chargeback.

Managing Ongoing Shortages & Chargebacks

Recently, we are seeing an increase in these chargebacks and shortages, resulting in increased fines when having to cancel purchase orders due to the supply chain constraints being seen throughout the industry.

According to our partners at Cleveland Research Company and their benchmarking data, nearly “93% of brands receive supply chain-related chargebacks from Amazon and 90% report receiving shortage deductions that are believed to be incorrect.”

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Dealing with Existing Disputes

Before moving forward with a dispute, be sure to familiarize the details of the chargeback, then follow the following suggestions to improve your chances of approval.

• Claim Escalation: You may have a better chance of success if claims over $200k are submitted as a single batch instead of individual shortage claims.
• Proper Documentation: This may seem like common sense, but often minor issues with documentation can be overlooked. Be sure that the bill of lading number matches the bill of lading, the order number matches that on the invoice, and the carrier signature is provided on the packing slip.
• Swapping Chargeback: If the opportunity to resolve longstanding chargebacks is low, there could be a chance your vendor manager may waive the chargeback by swapping it for an additional program such as SAS (Strategic Account Services) or Premium A+ Content. In which case the brand is then responsible for paying any difference.

Best Practices for Mitigating Future Disputes

Although disputing chargebacks and these shortage deductions can be successful in lessening fees, it does require a significant amount of time and resources to manage. To relieve the additional management for internal teams, and to avoid outsourcing, it’s important to review best practices to avoid these chargeback fees before they can even happen.

Catalog Scrub

Consider performing back-end checks by scrubbing your catalog to ensure the EDI has matching information. When doing so, you want to use Amazon’s Efficient Receive team to catch formatting errors and ensure GTIN library is clean and updated. Additionally, be sure to perform checks on your back-end catalog exports and turn off ASINs when you’re unable to fill incoming purchase orders.

Refine Your PO Process

To determine where the issue may be stemming from, confirm all systems are communicating properly. From there, perform a root cause analysis to identify miscommunications that can be easily fixed to avoid unnecessary future chargeback costs.

Labelling and Documentation

Run a cost benefit analysis to decide if correcting or adding labelling to shipments will make a significant difference in your overall costs. Regardless, also consider providing additional documentation through the purchase order or shipping process, which has helped avoid fees in some cases.

Shipping Methods

When considering your shipping methods, look into available supply chain programs to consolidate volume into fewer purchase orders or even consider drop shipping to bypass Amazon’s fulfillment network. Another option is Amazon’s Vendor Flex program for supply chain flexibility.

Finding the balance between the resources needed for fighting chargebacks and the loss associated with these shortages for your business, the best option is to avoid them altogether to limit the costs overall.

Feel free to reach out to our team with questions.