BY ROBERT PRATHER, FOUNDER AND OWNER OF DEDUCTION MANAGEMENT SERVICES
In my over 30 years of managing chargebacks, I am still surprised at the number of times I hear some recurring misconceptions on why companies do not pursue unauthorized chargebacks more aggressively. By “unauthorized”, I am not talking about allowed discounts, allowances or returns that have been agreed to. When I say “unauthorized chargebacks”, I am primarily referring to the large number of shortages, vendor violations, post audit and various other claims that have not been accounted for when costing the merchandise or profitability planning. A manufacturer invoices a retailer with the expectation that all or at least most of those invoices will be paid in full. When the manufacturer receives the remittance detailing payment of these invoices, they are surprised that it contains multiple claims which can wipe out or seriously dilute their profit. You’d think that most companies would not only want to research and recover this money right away, but also determine why it happened in the first place and take any means necessary to insure that it doesn’t happen again! Left unchecked, this “dilution” problem can put a company out of business (unfortunately, I’ve seen it happen more than once).
However, when I speak to Owners, Presidents, CFO ‘s and Accounting Managers, I am shocked that the issue isn’t taken more seriously. I understand that in the overall scheme of things, sales drive the business, but as someone that looks at the entire picture, my motto is and has always been, “it is not a sale until it’s paid for”. In an age where companies are looking at any way possible to increase profitability due to industry competition and retail uncertainty, looking at recovering more of your sales dollars can be the best, least expensive way to do it. So why aren’t more companies attacking this issue more aggressively? In my experience, I find that it comes down to two simple reasons:
- Not knowing the facts
- Fear
When you don’t know the facts, you base your decisions on what you “think” you know. This can be very dangerous. Let me start with a few of the “myths” surrounding not knowing the facts:
- I’m Factored and my Factor handles it – This is not true. Your Factor may give you a credit guarantee on the invoice, advance you on the sale and offer collection services when they purchase your receivables, but they do not and will not work on your chargebacks/deductions. This responsibility falls on the Manufacturer to handle.
- If I push too hard I’m going to upset my Retailer – The truth is, the Retailer expects you to validate the claim and if invalid, dispute it. The Retailers main goal is to get the goods from the Distribution Center to the sales floor in the fastest time possible. They abhor claims for label issues, invalid SKU Ratios, ASN doesn’t match carton count and the other million other violations you can be charged back for. In fact Kohl’s is an example of a company that rewards you for not getting these types of chargebacks. They have a grading system for their vendors. A & B Grade – You’re given a discount on your violations, C Grade – the full claim amount is deducted, D & F Grade – You’re charged an administration fee of up to twice the value of the claim. They do this because the Vendor has failed to address the issues. Retailers WANT YOU TO FIX THE PROBLEMS and will often reward you with some type of compensation (reversal of some valid claims) when they’ve verified the issues have been resolved. The long held notion that the Retailer uses these chargebacks as a “Profit Center” is just not true. The fact is, the Retailer knows that many Vendors will not fight these chargebacks and take that into account when creating their budgets for the year. I’ve spent years working with the RVCF (Retail Value Chain Federation), an organization that brings Vendors and Retailers together to collaborate on issues such as this, and many of the Retailers say that they want their Vendors to become more involved with resolving problems that cause deductions/chargebacks. If you’re interested in learning more about the RVCF, send me an email.
- Other types of claims like, Post Audits, Shortages and Pricing can be successfully researched, validated and recovered by knowing how to present the package to each individual Retailer, who to send it to, and how to follow it up.
I hope the tips I shared with you helped. If so, let me know! I like to hear from companies and people I’ve helped. If you have any further questions or would like to inquire about our services, you can send me a message or call (626) 736-3588.
