In this article, learn about:
Co-Op agreements and financial mechanics
Common types of Co-Op agreements at Amazon
Auditing and discrepancies in Co-Op deductions
Dispute management in Vendor Central
Amazon Co-Op, also known as Contra CoGS (Cost of Goods Sold), is a critical program for vendors/suppliers operating within the Amazon Vendor Central ecosystem. It features a variety of Co-Op agreements designed to financially support the vendor’s partnership with Amazon, primarily by helping vendors/suppliers to promote their products and raise brand awareness by increasing traffic to their product listings.
These Co-Op agreements provide a significant benefit to brands by supporting investment in promotions and helping vendors sell more products through increased visibility and marketing reach.
Co-Op can also include agreements that charge to cover inbound freight costs of shipping vendors’/suppliers’ products to Amazon warehouses, and costs of damaged or defective returns of their products. From a high level, Co-Op deductions fall under the umbrella of accounts receivable deductions, as Amazon will invoice vendors/suppliers through a deduction in their recurring payments for Purchase Order (PO) invoices.
Co-Op deductions also technically fall under the umbrella of trade deductions (vs. non-trade) since they are negotiated terms covered by a trade budget. Co-Op fees and other negotiated fees are calculated as part of the overall deal between Amazon and the vendor, and vendors pay these fees as part of their investment in the partnership.
Co-Ops technically cover one of three primary activity types:
Marketing & Promotion
Freight Allowance (usually for Collect)
Damage Allowance
Vendors/suppliers can use Amazon’s Co-Op portal in Vendor Central to manage their Co-Op agreements, invoices, and payments for different types of program agreements. This centralized management area is crucial, as it provides the necessary transparency and tools for financial reconciliation, a function vital to maintaining healthy margins when dealing with a massive retailer like Amazon.
Ultimately, Co-Op agreements are designed to help brands maximize their money spent on marketing, increase selling opportunities, and ensure that promotions are effectively managed to drive sales. By understanding the structure of Co-Ops, fees, and the overall investment required, brands can secure better deals, sell more products, and improve profitability on Amazon.
Related Reading: Amazon North American Vendor Manual
Co-Op Agreements and Financial Mechanics
The Co-Op program includes agreements for a variety of vendor/supplier business functions. There are different types of agreements:
Co-Op, Damage, and Freight Allowances: These agreements are typically accrued against net receipts into Amazon fulfillment centers on a monthly basis. The accumulated balance for the entire month is billed based on the schedule listed in the agreement terms. The distinction between ‘net receipts’ and ‘net sales’ is fundamental here, as it dictates when the financial obligation is calculated. Agreements based on receipts are tied directly to inbound logistics and the receiving process at Amazon’s fulfillment centers, making them less volatile than sales-based agreements but still subject to auditing based on physical receiving records. A Co-Op agreement may include terms for promotional allowances that are calculated based on sales volume or other metrics, making the deduction amount variable depending on performance.
Straight payment: This represents a fixed amount negotiated between Amazon and vendor/supplier representatives. These are often used for lump-sum vendor funding toward a specific, non-recurring initiative or a minimum contribution to the overall trade spend budget.
Promotional allowance (SPA)/FLEX agreements: These are promotional allowances based on orders placed, and not canceled, during the promotion period. They usually come in the form of Vendor Funded Sales Discounts. Importantly, they are on an accrual basis based on net sales instead of net receipts. Because they are sales-based, the final deduction amount is directly contingent on consumer demand and the success of the promotional period. This introduces a variable risk factor that must be budgeted for carefully. Coupons are another promotional tool vendors can use as part of their Co-Op agreement to drive sales during the promotion period.
Price Protection agreements: These protect against a reduction in value of the units currently on hand and in-transit within Amazon’s inventory pipeline. This mechanism is a safeguard for Amazon’s margin. When a vendor lowers the wholesale cost (CoGS) of a product, Amazon will issue a price protection deduction to cover the difference in value for any stock it currently holds. This is a crucial concept for vendors to understand, especially during semi-annual cost negotiations, as a reduction in CoGS can immediately trigger significant price protection deductions. When a vendor reduces the product price, Amazon will automatically apply the lower price to open purchase orders and inventory in transit, ensuring consistent pricing. A price protection agreement is auto-created when there is a drop in the ASIN price.
The financial timing of these charges can often lead to confusion. For instance, a vendor may ship goods late in one month, but Amazon may not formally receive and process them until the following month. Since Amazon bases their totals on what their records show is actually received over a calendar month, sometimes invoices and shipments do not match.
For any specific month, totals can differ due to the difference in dates between vendor/supplier shipments and dates Amazon receives. Vendors must align their internal accounting accruals with Amazon’s receipt-based billing cycles to minimize month-end discrepancies.
Common Types of Co-Op Agreements
Co-Op agreements are a foundational element of the Amazon vendor agreement, providing structured opportunities for vendors to invest in their brand’s growth and visibility on the platform. By leveraging these agreements, Amazon vendors can strategically raise brand awareness, drive sales, and support promotional activity that aligns with their business goals.
Understanding the common types of Co-Op agreements is essential for vendors aiming to maximize the benefits of their partnership with Amazon.
Here are the most common types of Co-Op agreements that vendors encounter:
Marketing and Promotional Allowances: These agreements enable vendors to fund marketing initiatives such as sponsored product placements, Lightning Deals, and other promotional activities. By participating in these programs, vendors can increase product visibility, attract new customers, and strengthen their brand presence on Amazon.
Freight Allowance Agreements: Designed to help cover inbound freight costs, these agreements reimburse vendors for a portion of the expenses associated with shipping products to Amazon fulfillment centers. This type of agreement is particularly valuable for vendors managing large or frequent shipments, as it helps control logistics costs and maintain healthy profit margins.
Damage and Defective Return Allowances: These agreements provide a financial buffer for vendors against the costs of damaged or defective returns. By setting aside a predetermined allowance, vendors can better manage the impact of returns on their accounts receivable and overall cash flow, ensuring that unexpected costs do not erode their trade budget.
Each of these Co-Op agreement types serves a distinct purpose within the broader Amazon vendor agreement framework. By understanding and strategically negotiating these common types of agreements, vendors can better manage costs, reduce disputes, and invest in activities that drive long-term brand growth on Amazon.
Auditing and Discrepancies in Co-Op Deductions
Despite Co-Op deductions being expected and budgeted expenses, they should be regularly reviewed for accuracy. Reasons for regularly auditing Co-Op agreements are pretty straightforward:
Auditing creates accountability for retail partners, ensuring that they are holding true to their contractual obligations. Unintentional mistakes happen in business agreements, so check your work along with Amazon’s will be beneficial to everyone moving forward.
Invalid Co-Op deductions directly impact the financial bottom line and can erode margin and overall channel profitability.
Proactive auditing is the foundation of effective deduction management. Assuming that a deduction is valid simply because it is a “trade” or “Co-Op” charge can lead to millions in lost revenue annually.
The volume and complexity of Amazon’s transactional data make manual auditing challenging, but the financial reward for correcting even a small percentage of erroneous charges is substantial.
It is also important to document audit findings and all related correspondence for future reference, as this record supports ongoing deduction management and provides clarity during future negotiations.
Common Discrepancies
Common discrepancies for Co-Ops are:
Negotiated exceptions: These are the easiest types to detect and dispute. Usually based on communications between the Vendor and Amazon regarding the implementation of a waiver period. The Vendor is usually aware of the agreements that are waived for any time period, but Amazon may still charge against them since they have a more automated process. The core issue here is often a communication breakdown between the retail-facing vendor team (who negotiated the waiver) and the financial systems team at Amazon (whose automated deduction logic was not updated). The vendor's communication (emails, agreement amendments) serves as the primary evidence in these disputes.
Agreement-based discrepancies: These are usually based on agreement details that have been implemented inaccurately. For instance, charging Co-Ops outside of an agreement effective period, charging the wrong rebate rate or amount, charging an amount or rate from a previous agreement of the same type, or charging against items received from the wrong vendor code. A key example of an agreement-based discrepancy is when a promotional allowance is calculated on a standard, non-promoted unit cost rather than the agreed-upon promotional cost, leading to an inflated deduction amount. Tracking the agreement's start and end dates against the billing date is a simple but critical audit step.
Backup report discrepancies: These are usually the hardest to detect since backup reports can contain thousands of rows of data. Usually, the discrepancies would come in the form of applying the wrong rebate amount/rate, basing the rebates off of the wrong quantities received or sold, or even the wrong unit costs. The challenge in detecting these lies in matching Amazon's granular, line-item data in the backup report against the vendor's internal invoicing and receiving records. This often requires complex data merging and pivot table analysis to flag outliers where the billed quantity or rate doesn't match the expected terms. Furthermore, a price protection deduction may be incorrectly applied to units that were shipped after the price drop, but before the new pricing was reflected in Amazon's system.
Kickstarting the process of auditing or fighting Co-Ops is tricky, but vendors can follow a few important steps that are helpful in staying on top of things. Auditing is not a one-time event; it is a continuous process that should be integrated into the monthly close activities of the finance and accounts receivable teams. Many vendors assign specific analysts to focus solely on Co-Op charges because of their complexity and potential financial impact.
Dispute Management in Amazon’s Vendor Central
If suppliers believe that they were invoiced incorrectly for a Co-Op agreement, they can dispute it via Dispute Management in Vendor Central.
This tab enables vendors to create new disputes, search existing disputes, view all active and closed disputes, view dispute details, and correspond with Amazon analysts working on their dispute cases.
Accessing Co-Op and Backup Data
Vendors can view their Co-Op invoices in Vendor Central to review both the invoice total and the details and download the corresponding backup reports. The Co-Op page will also allow them to export invoices over a 90-day date range to a spreadsheet, as well as dispute Co-Op deductions.
To check invoice backup details and contract terms, go to Co-Op and search using the invoice ID, agreement number, or date range. Select the invoice and choose Backup report from the Available downloads drop-down.
To identify who signed or accepted a Co-Op agreement, go to Manage Permissions to review who has admin access to accept agreements. The users listed as Admin have the right to accept or reject an agreement.
To find the terms and conditions of an Auto Price Protection agreement, go to Agreements and look under Accepted/Rejected.
Amazon sends original invoice copies once a month to the billing address on the agreement. These original copies often lack the digital watermarks present on the online versions, making them cleaner for internal records, and they are essential for suppliers that manage payments internally.
Download Co-Op Backup Reports
Backup reports are available for most agreement types. Vendors can download a backup report from the invoice search results for all reports other than price protection and straight payment agreements.
Go to Payments > Co-Op and select the invoices.
Download the invoice report from the Available downloads drop-down.
The backup report is generated when you click Download report.
A backup report contains the most detailed account of what suppliers have been billed for, including: ASIN, manufacturer, promotion, date, PO, product detail, and other details. When reviewing payment information, use the ASIN information provided in the reports to verify the payments, not the product IDs (UPC/EAN). The ASIN is the unique, permanent product identifier within Amazon's catalog and should be the singular source of truth when matching deductions to specific items.
Backup reports will be available to download by the seventh day of the month.
Backup reports are not available for the following agreements:
Lump sum agreements, such as straight payment and volume incentive agreements, where the Co-Op deduction is a fixed amount agreed between you and Amazon, rather than an automated calculation based on receipts or shipments.
Agreements billed through the estimated reconciliation process where suppliers and Amazon reconcile the billing amount together.
Price protection agreements where the contract text of the agreement outlines the ASINs and cost changes covered. For these agreements, the vendor must audit the cost change trigger and the date of the deduction against their inventory reports and cost history, rather than a detailed line-item backup.
How to Dispute a Co-Op Agreement Invoice
If suppliers see an incorrect Co-Op deduction on their account, they should file a dispute.
A dispute can be created from the Co-Op or the Dispute management pages in Vendor Central.
To create a dispute from the Co-Op page, go to Payments > Co-Op, select the invoice, and click Dispute deductions in the Available actions drop-down menu.
To create a dispute from the Dispute management page, go to Payments > Dispute management, click Create new dispute, and select Co-Op. Enter the Co-Op invoice number that you would like to dispute, and click Next.
The dispute submission process is a critical, structured workflow designed to provide Amazon with all the necessary information for a quick resolution. Skipping steps or providing insufficient documentation is the number one reason for dispute rejection.
On the Create dispute: Step 1 page, select a dispute reason, enter the dispute amount, then click Continue.
On the Create dispute: Step 2 page, enter a dispute title (up to 200 characters long), and add a summary describing your justification for the dispute. The justification summary must be concise, factual, and reference the specific evidence (document names, dates, amounts) that contradicts Amazon’s deduction.
Click Browse to upload any relevant documentation to support your dispute, then click Continue.
On the Create dispute: Step 3 page, review your dispute and click Submit. You can also save it as a draft to complete later.
Once the dispute is submitted, the vendor/supplier is assigned a Dispute ID, which can be used for tracking.
Related Reading: A User’s Guide to Vendor Central
Strategies to Mitigate Large Co-Op Charges and Avoid Provisions
While there are no preventative measures to guarantee avoiding Co-Op deductions, as they are part of the fundamental trade agreement, there are proven best practices that help reduce invalid Co-Op deductions and avoid entering a debit balance causing holds for provisions for receivables.
A debit balance occurs when the total deductions and chargebacks taken by Amazon exceed the total value of current PO invoices that Amazon owes the vendor. When this happens, Amazon flags the vendor account as high risk and may institute a 'provision for receivables,' which is essentially a financial hold or set-aside against future payments until the debit balance is cleared or resolved. Avoiding this status is paramount, as it can severely disrupt cash flow.
Best Practices
Review/audit to uncover erroneous and invalid Co-Op charges. Dedicated time must be allocated weekly or bi-weekly to this process, not just at month-end, to ensure claims are filed within the allowable timeframe specified in the Vendor Central terms.
Use external softwares to make the audit process timely and less painful. These specialized tools use automation and machine learning to ingest Amazon's data, match it against the vendor's financial records, and automatically flag the most likely invalid deductions, saving hundreds of hours of manual review by focusing analyst time only on high-probability claims.
Make sure to negotiate agreements for all Co-Ops in order to avoid being at the mercy of the Amazon provisional rates algorithm. If no formal agreement exists for a certain type of allowance (e.g., freight), Amazon has the contractual right to charge a default "provisional" or "estimated" rate. These provisional rates are often punitive and higher than a negotiated rate, so securing formal terms for every possible charge is a key defense.
Negotiate during AVN (Annual Vendor Negotiations) to try and reduce Co-Op rates. The Annual Vendor Negotiation is the single most important event for controlling Co-Op costs. Vendors must come prepared with detailed data showing their profitability, operational efficiency, and market share growth to justify a reduction in the percentage of their sales dedicated to Co-Op charges.
Increases in efficiency, reductions in costs, and increases in profitability are all levers that can help with negotiating during AVN to lower Co-Op accrual margins. Demonstrating improvements in supply chain performance, such as reducing shortages and compliance fines, gives the vendor leverage to argue for a lower trade spend requirement.
Reducing unexpected (non-trade) deductions can help to prevent exposure to debit balance and provisions for receivables: These non-trade charges include Shortages and Compliance chargebacks. While not technically Co-Op, they drain the accounts receivable balance, making the overall account more susceptible to a debit status if large Co-Op charges hit simultaneously.
How SPS Commerce Can Help with Deductions at Amazon
SPS Commerce Revenue Recovery (formerly known as SupplyPike for Amazon) helps suppliers save time by automatically harvesting shipping documents. Our shipping document integration then automatically performs validity checks on deductions and chargebacks, enabling suppliers to dispute invalid deductions automatically.
This automated process drastically reduces the dispute cycle time and ensures that documentation (like signed Proofs of Delivery or Bills of Lading) is correctly matched to every relevant shortage or freight deduction, streamlining the creation of a complete and evidence-backed dispute case. In addition to these features, SupplyPike and similar services help vendors manage Co-Op deductions, analyze agreement data, and optimize profitability by providing tools and solutions tailored to Amazon Co-Op charges and agreements. Schedule a meeting with a team member today to see if SupplyPike is right for your business.
