In this article, learn about:
What a dispute is and how to start the dispute process
Common roadblocks suppliers face when disputing deductions
Best practices for disputing invalid deductions
Approximately 1-3% of a supplier’s revenue is lost to deductions each year; deductions that could be recovered through successful disputing.
Disputing deductions can be daunting—from stringent retailer requirements and tight deadlines, to lack of resources and capacity. But revenue recovery does not have to be overwhelming. Suppliers can get their money back in their pocket.
The best place to start is by taking a step back and understanding the deduction and disputing process from a big picture perspective.
What is a Deduction and When Should Suppliers Dispute Them?
At a high level, a deduction is an amount deducted from an invoice due to errors or non-compliance as determined by the retailer. These errors range from sending the Advanced Ship Notice late to short shipping.
This guide will use the term deduction to describe any invoice adjustment, such as defined above. Some retailers will use the term chargeback interchangeably with deduction, while others use the term chargeback to refer to a charge billed to the supplier after the invoice is paid. This type of charge is also sometimes called a fine. To know how a retailer uses these terms, it is important for suppliers to review the retailer’s vendor compliance guide or policies and procedures.
Sometimes, a supplier will receive a deduction that is invalid. This can occur for a number of reasons. For example, a shipment arrives late to a distribution center (DC) due to a weather incident such as a tornado or hurricane, but the supplier still receives a deduction on their invoice for this “error.” In this instance, it is in the supplier’s best interest to dispute this deduction because it would be considered invalid.
The first rule of disputing deductions is to validate the deduction before proceeding with a dispute. A valid deduction, such as a late shipment with no extraneous circumstances, when disputed, is unlikely to be approved. Disputing valid deductions may waste a supplier’s time and effort due to the likelihood of the dispute being denied.
When disputing an invalid deduction, each retailer will have a slightly different process. The goal of a deduction dispute is for a supplier to get their money back. Retailers will make mistakes during the supply chain process and it is important for suppliers to understand the retailers’ process for disputing and be prepared to dispute when the retailer imposes an invalid deduction.
Related Reading: What is Deductions Management?
How to Dispute Invalid Deductions
Once a supplier has determined that a deduction received is invalid, the next step is to begin the dispute process in earnest. While every retailer will have a slightly different process for disputing, there are some important things across the board that suppliers should be aware of in the dispute process.
Documentation
The first step of submitting a dispute is to collect all necessary proof documentation. Proof documentation is all documents retained through the supply chain process that prove that a deduction was imposed in error by the retailer.
Across most retailers, some common documents required for a successful dispute are:
Copy of Purchase Order (PO)
Copy of invoice
Copy of packing list
Other shipment records: scans, carrier logs, time stamps, etc.
Emails or photos as necessary
Comprehensive documentation is the heart of good dispute practices. Without providing relevant and conclusive proof documentation, a dispute is unlikely to be approved. Copies of invoices and POs are helpful to show the retailer why the deduction is in error.
For example, perhaps a retailer thought that a shipment was short, when in reality the PO and subsequent shipping documents prove that the amount was correct from the start.
Shipping documentation, such as the BOL, POD, scans and logs, are important for proving that a shipment actually did arrive on time. In this case of a weather incident causing a late delivery, a BOL may not directly prove that the late delivery was not the supplier’s fault. However, it will support the evidence provided by carrier and DC logs, which are more likely to provide explanations for the late delivery.
Timing
Once all the relevant and necessary documentation is gathered, it is imperative that suppliers submit a dispute within the expected timeframe. Some retailers will have tighter timelines than others, so it may benefit suppliers to prioritize disputes for retailers with a shorter dispute window.
Tracking and Follow-Up
Once the dispute has been submitted, it is beneficial for suppliers to check in on the status of the dispute regularly. Regular check-ins help suppliers ensure they do not miss any additional action items requested by the retailer. They also allow suppliers ample time to re-dispute a previously denied dispute, should that be necessary.
Whether disputing deductions or not, maintaining open communication with retailers and/or buyers is important to avoid confusion regarding deductions, dispute decisions, or any other questions or concerns a supplier may have.
What are Common Roadblocks Suppliers Face During the Dispute Process?
Disputing deductions can be a daunting task for suppliers. For large suppliers, working with many retailers, this means potentially receiving multiple deductions on each invoice. Manually disputing deductions is a time-consuming process, even after sifting through and validating each deduction and only disputing the invalid ones.
Common roadblocks that suppliers face when it comes to disputing deductions are:
Lack of capacity to manually dispute in a timely manner
The returns from disputing do not outweigh the effort involved to manually dispute
Fragmented, incomplete, or inaccessible documentation
Lack of clear root-cause data into why the deduction occurred in the first place
Variability and/or inconsistency in retailer deduction documentation
In addition to in-house roadblocks, suppliers will also face roadblocks on the retailer side. Commonly, these roadblocks are from unclear retailer expectations, and tight and inflexible deadlines.
What are Disputing Best Practices for Suppliers?
Validating deductions, familiarity with each retailer’s disputing expectations, and knowing what roadblocks may block the path to successful disputing—these are invaluable areas suppliers should spend time understanding fully as they pursue revenue recovery through disputing deductions.
There are also some best practices suppliers can tap into to improve their revenue recovery process more fully:
Document management: Suppliers should invest in an efficient and easy-to-use system for retaining and organizing important documents, such as POs, BOLs, ASNs, etc.
Automation: Suppliers may find the cost of paying for disputing automation outweighs the effort of manually disputing in-house.
Prevention: The best way to manage disputes is to avoid them by preventing deductions in the first place.
Whether a deduction is valid or invalid, it is in the supplier’s best interest to invest in prevention measures across their entire supply chain. This could look like better document management, streamlining their in-house disputing process, or even paying a third-party to automate disputing. Preventing deductions keeps suppliers from losing time to disputing invalid deductions, and from losing money to valid deductions.
Ultimately, the fewer deductions suppliers receive, the better their vendor score will be with their retailer partners, which can lead to a stronger business partnership with your retailers.
