Chargebacks Part 4 – Best Practices for Minimizing Chargebacks

Incentives

First, it’s helpful to look at chargebacks not so much as a penalty, but as an incentive to follow your customer’s requirements. Most customers would prefer you follow their business rules and not get chargebacks. See my post on “Understanding Your Customer’s Motivation for Chargebacks” for more about why that is so.

Most chargebacks occur because of preventable errors. Examples include incorrect labels, the wrong shipping address, shipping with the wrong carrier, not sending correct advance ship notices and incorrect item packing. If you take actionable steps to prevent errors, you can minimize the chance that you’ll be hit with costly fees. See my post “Chargebacks Part1 – What are chargebacks?” for a more extensive list of errors.

Avoiding chargebacks can seem intimidating at first. To help you out, employ these best practices:

Understand Your Customer

Understanding your customer is the number one best practice to follow. Thoroughly review your customer’s compliance material and make sure you understand all the business rules and documentation requirements. Attend any vendor events and training. Many times these are delivered via a webinar. Make it a point to keep up with any new or changed requirements. Make sure everyone in your organization who is affected is up to date.

Shipping

Place barcode shipping labels in the correct location on cartons.

Regularly maintain your label printer so labels print clearly and are scannable at the customer’s receiving dock.

Although a laser printer can produce useable barcode shipping labels, consider using a thermal barcode label printer instead. A thermal bar code label printer prints with heat on special stock and produces a more durable label.

Be sure the barcode label number on each carton matches the carton number on the corresponding ASN (Advance Shipping Notice).

Be sure the contents of every carton match the contents specified on the ASN.

EDI (Electronic Data Interchange)

Thoroughly test or have your EDI provider thoroughly test with your customer.

Use the EDI purchase order data to automatically fill the EDI ASN and EDI invoice.

Carefully check any data you add or change on the ASN and Invoice.

Use an EDI solution that includes data validation checks.

Use an EDI solution that shows acknowledgment status. Your customer should acknowledge all transmissions within 24 hours and most will do so sooner than that. Be sure to verify that all transmissions have in fact been acknowledged so that you are sure all required documents have been received by your customer. Follow up immediately if there is any discrepancy.

Organization

Prevention – Minimizing chargebacks will be difficult if you are continually fixing mistakes instead of preventing them. Systemic problems may be the cause of chargebacks.

Dig deep – Chargebacks are often a sign of an underlying issue that might not be apparent at first glance. Something as simple as incorrect shipping information on package labels might indicate an issue with company software, the ordering process for customers or another supporting process. Dig deep and identify the actual reasons for chargebacks. Then, make the changes necessary to correct the situation from occurring in the future.

Commit to communication – Few issues can be resolved without communication. Not only must you be committed to good communication throughout your company, but you must be committed to communicating with your customers. Many customers change their requirements only rarely. Some change their requirements more frequently. Regardless of the frequency of changes, if you show interest and a dedication to improving your compliance with their requirements, you can expect to grow your relationship.

Point person – Appoint one person in your organization to be familiar with all your customer’s compliance requirements and have that person responsible for ensuring all team members are aware of what they have to do to meet the requirements and to support their fellow team members. If you use a 3PL warehouse, the point person should also communicate with them. Have a back up person for the point person so that the vacation or sick days do not cause issues.

The Right EDI Solution

You must have the right EDI solution in place. Without such a solution, you cannot exchange vital documents with your trading partners, communication will be limited, and errors will proliferate. In short, you leave yourself open to chargebacks due to variations in requirement compliance on all levels.

Contesting Chargebacks

Sometimes chargebacks are not correct. You should contest any chargebacks that you believe have been assessed inappropriately based on your customer’s requirements.

Your customer will probably have supporting documentation for the chargeback. This may included pictures of your cartons, packaging and product as well as documentation of problems. Emails and phone calls will be logged.

Similarly, you need to keep good records of your phone and email correspondence and any other supporting documentation to show that you were in compliance. Your EDI provider can provide assistance for EDI related chargebacks by providing 997 functional acknowledgments that prove receipt of EDI documents you sent as well as providing the raw EDI for documents that were received and sent.

Refer to your scorecard history as as you make your case. Your past good compliance performance is an important factor. Most customers will appreciate your focus on their requirements over the length of your relationship with them.

Summary

It can take considerable effort to minimize chargebacks, but the rewards are great. Not only do you avoid unnecessary expenses, but you build stronger relationships with your customers by proving that you’re committed to compliance and quality. Most likely you will see improvement with all of your customers, not just your customers who require EDI.

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