In this article, learn about:
The impact of retailer chargebacks on suppliers
The lifecycle of invoice deductions, from PO to disputing
Real-life examples of retailer deductions and supplier revenue recovery
Suppliers lose money to retailer deductions every day. Often, overhead is low, which means that suppliers do not have the time, capacity, or capital required for reviewing deductions and/or disputing them. Retailers also tend to give short windows for disputing deductions, resulting in deductions often going undisputed.
The result is that, when retailers add invalid deductions to an invoice, suppliers may not catch it and will lose money that they could have put in their pockets.
Note: except when clarified per retailer differentiation, this article will use the term deduction to refer to monetary deductions taken off the invoice by the retailer. Chargebacks and fines will be defined based on retailer specifications.
The Impact of Retailer Deductions
Suppliers working with multiple retailers receive invoice deductions regularly. On average only 20-30% of deductions are ever disputed by suppliers, yet an average 40% of disputed deductions are won back.
For example, Bissell, prior to using a third-party revenue recovery software, was forced to write off thousands of small deductions ($500 or less) due to lack of time and capacity. While each deduction on its own was small, they added up quickly, costing Bissell thousands of dollars to multiple retailers.
Just disputing invalid deductions is not enough. Suppliers must also recognize what is causing the deductions, even the valid ones. Limiting the impact of deductions includes both a reliable dispute process as well as prevention on the front end.
Related Reading: Building a NextGen Revenue Recovery Team
Overview of Common Deduction Reasons
Retailers impose deductions for many different errors from shipping compliance to barcode accuracy. These errors may fall on either the supplier or retailer side, so it is important for suppliers to have easily accessible and accurate proof documentation available should a dispute be necessary.
Some common reasons for deductions include:
Failure to adhere to retailer specific compliance requirements, for example: On Time In Full (OTIF) compliance with Walmart.
Incorrect or mismatched documentation, such as POs, BOLs, and ASNs
Shipping with an unauthorized carrier
Failing to schedule a delivery time, when shipping through a retailer DC
Late delivery to the DC
Delayed or canceled shipments
Damaged or destroyed products
Mis-labeled products
Using unauthorized packaging materials
Using incorrect or unauthorized barcodes
Damaged cartons or packaging
Damaged pallets
Products incorrectly packed on pallets
Failure to comply with Electronic Data Interchange (EDI) standards
The Lifecycle of a Deduction
Deductions have an enormous impact on supplier revenue and can come from all areas within the supply chain process, from accepting the PO to when the product is finally sitting on a retail shelf. But how does the deduction process fit within the overarching supply chain process?
Overview of the Supply Chain Process
The supply chain shifts into gear when the supplier receives a Purchase Order (PO) from the retailer.
Next, the supplier will accept the PO and then begin the process of prepping the product for shipment. Should the supplier also manufacture the product, then this adds several extra steps.
The product is then packaged and shipped either directly to the retailer, or to a retailer’s Distribution Center for pickup by an approved carrier.
The product arrives at the retailer, where it is shelved for purchase by the customer, either in store or online.
Deductions can occur at any step in the supply chain process. When the retailer thinks there is an error, they will notify the supplier, but this may not happen until the retailer pays the invoice. Some retailers, such as Ulta, will notify the supplier prior to taking the deduction out of the invoice.
Reviewing Invoice Deductions
The deduction process picks up where the supply chain timeline above leaves off:
The supplier sends an invoice to the retailer.
The retailer pays the invoice, including deductions for errors, such as late shipments or mislabeled products.
The supplier is notified of error(s) and corresponding deduction(s), either prior to receipt of the paid invoice or on the paid invoice itself.
The supplier should then review the deduction, and its explanation, to determine if it is valid or not.
Disputing Invoice Deductions
If the deduction is invalid, suppliers should begin to take steps toward disputing the deduction:
Gather proof documentation, such as BOLs, ASNs, PODs, and even emails and photos.
Review the retailer’s requirements for disputing, specifically ensuring that the dispute is submitted both correctly and on-time.
If the dispute is denied, suppliers should take some time to review proof documentation again to see if a re-dispute would be an option.
It is important for suppliers to understand retailer expectations, because some fines will not show up as invoice deductions but will be sent after the fact—sometimes weeks or even months later. Suppliers may face challenges with disputing deductions from older invoices, because locating and providing supporting documentation becomes more difficult over time.
Some retailers will run audits (for Walmart called Post Audits) occasionally to back check processes. This will result in fines or chargebacks to the supplier, potentially even for past shipments that were paid for in full. This will restart the dispute process for the supplier and may require extra lift to review and validate the error and corresponding charge and find proof documentation for a successful dispute.
Dispute Decision and Re-Disputing
Once the supplier has reviewed and disputed the invalid deduction, chargeback, or fine, the final steps are:
The retailer reviews the dispute.
The retailer notifies the supplier of the dispute decision.
If the retailer approves the dispute, then the supplier will receive a payment adjustment for what was initially deducted.
If the retailer does not approve the dispute, then the supplier may (depending on the retailer) have the option to re-dispute with additional information or proof.
If the re-dispute is approved, then the supplier will receive a payment adjustment.
If the re-dispute is not approved, then the supplier should review the retailer policy to see how many times a re-dispute is possible, and whether or not an additional re-dispute is worth the effort.
Deductions: Real-Life Supplier Examples
This guide has discussed where deductions fit into the big picture and have seen a thousand-foot view of common deduction reasons and their impact on suppliers. But what does this look like from the perspective of real-life suppliers?
Example 1: Anonymous Supplier
Mary, working with SPS Commerce’s Revenue Recovery team, notes that “If you are a partner with (your retailer), they will be a partner to you.” A great example of this comes from an anonymous supplier who was newly partnering with a large, well-known retailer. Unfortunately, on the day that the supplier’s products were to debut on the retailer’s shelves, they noticed that the PO’s were all sent with incorrect information.
The supplier reached out to their buyer, alerting them to the issue, and suggesting a collaborative way for them to fix the issue quickly, without harming either party. As such, the retailer granted an exemption to avoid compliance fines during the period of the program.
Disputing deductions and recovering revenue starts with maintaining a good relationship with your buyer.
Example 2: Eagle Foods
Eagle Foods was struggling with Walmart OTIF compliance and managing the many invalid deductions levied against them. Disputing OTIF deductions is tricky as they typically require a lot of documentation that exists in many different places both within the supplier’s own systems and Walmart’s vendor portal.
Between valid non-compliance, and invalid compliance deductions, Eagle Foods was floundering and losing money fast. They desperately needed a new system to help organize documentation and automate the dispute process.
By implementing a third-party automated dispute process, Eagle Foods was able to recover more than $400K in revenue previously lost to Walmart deductions.
