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What are Chargebacks and Deductions?

  1.  Retailers charge manufacturers and distributors fees for any type of perceived problem.
  2. There may be punitive charges for paperwork not matching such as Purchase Orders and Invoices.
  3. A charge can happen for any type of packing or transportation issue that retailers record (e.g. late shipment).
  4. Damaged shipments or goods not received cause chargebacks and deductions.
  5. Not shipping within specified time frames is a typical chargeback.
  6. Retailers' chargebacks and deductions processes are automatic and systematic and apply charges at lightening speed.
  7. Often retailers own faulty inventory management processes are to blame; manufacturers and distributors need to fight chargebacks and deductions with automated dispute processes.
  8. Disputing 100% of your chargebacks and deductions results in positive ROI and will cause retailers to pick on someone else.

Manufacturer & Distributor Nightmare

Chargeback and deductions nightmare...

What exactly does “chargeback” and "deduction" mean? In our context, it’s not consumer protection from fraud, but fees determined by large retailers such as Amazon or Walmart on their vendors for committing a violation in the realm of shipping or packaging. 

Identifying and resolving common issues on the front end to avoid chargebacks recurring in the future can be helpful. Although each chargeback and deduction is unique, most fall into one of two categories, shipping and packaging, and commonly fall into one of 5 areas

  • Purchase Order Issues
  • Receiving Issues
  • Packing Issues
  • Advanced Ship Notice (ASN) Issues
  • Transportation Issues

Even when best efforts are made to prevent deductions and chargebacks from occurring in the first place, they are inevitable. And because this is often a means for profit for retailers, they do not make the chargeback and deduction appeal process easy, leading many vendors to simply treat them as a cost of doing business.

iNymbus undertook a study to find out, in fact, which Amazon chargebacks are most recoverable!

Download PDF Amazon Chargebacks  Recovery Percentages Study

The Problem

The struggle is real!

Chances are the majority of sellers find the chargeback and deduction screens and procedures frustrating, with changes implemented seemingly randomly, and governed by increasingly complicated algorithms. Vendors speculate retailers like Amazon and Walmart makes processing chargebacks deliberately complex by causing issues vendors face every day dealing with chargeback processing, to make it harder for vendors to dispute chargebacks; thereby increasing their own profit margins. 

Large retailers require vendors to upload claims and backup documentation into their retailer portals. It’s a detailed and time-consuming process because each claim has to be organized and uploaded. Usually it means training resources to upload claims to retailer portals. Every portal is different, from navigation to data and documents required, then compilation order of the documents necessary for each claim package.

In a study done on Warner Brothers, the time and monies involved in accomplishing this process manually showed that it usually took a very motivated and trained resource between 5 to 8 minutes to organize a claim and 5 to 7 minutes to upload a claim into the portal. That's a total of 1 to 15 minutes per claim.

In another study on a Walmart apparel distributor, it was calculated that each deduction claim took 8 to 15 minutes to manually complete.  At almost 3,000 deductions quarterly, that's 400+ manpower hours spent, just trying to recover losses!

Processing chargebacks and deductions from the Amazon’s and Walmart’s of the retail space creates departmental pressure, is tedious and time consuming, and does not seem to be worth the human capital. 

Manual Solutions

Traditional solutions just don't cut it!

As a Seller’s volume grows (a fantastic problem), it is imperative to immediately implement a strategy to deal with the chargebacks that will also grow with this volume. In the beginning these simple steps will succeed in containing chargebacks and deductions:

  • Plan to hire seasonal temps
  • Organize chargebacks into categories by Issue Type and related documentation
  • Establish written chargeback processing SOPs
  • Utilize standardized spreadsheets to organize processing and research
  • Provide close supervision to answer questions and troubleshoot processing issues
  • Establish a chargeback threshold - minimum amount that is worthwhile for a team member to process.

Quickly, volumes can get out of hand with thousands of penny chargebacks adding up to thousands of dollars. Solving these problems is an ongoing struggle. Suppliers’ and Manufacturers’ accounting departments are constantly trying to figure out what magic mix of solutions will finally beat deductions & chargebacks down.


But these traditional solutions will not fix the problem. Retailers such as Amazon, Walmart and Target are more automated than everyone and have exceptional resources at their fingertips and use systems, computer automation and robots to raise chargebacks and deductions. Meanwhile, distributors are left with manpower costs and mental fatigue surrounding the in-house manual processing of chargebacks and deductions.

Completely New Solution

But wait - there IS a better way!

 At this point, the only way to dispute chargebacks and deductions on-time and successfully, is to automate processing and use similar robotic technology that retailers like Amazon use to create the chargebacks in the first place. It is 100% possible to take your company's SOP and automate the document matching and uploading, the algorithm calculations and data entry required to dispute chargebacks.

Using cloud robotic automation to process deductions and chargebacks quickly and automatically is a unique solution. But it is possible to fight technology with technology and win, as was the case for a large book distributor faced with continued profit loss as a result of Amazon deductions and chargebacks:

Manual vs. cloud robotic automation

In about 90 days, a book distributor implemented robotic processing and brought their chargebacks to ZERO. They found themselves current on Amazon chargebacks for the first time EVER, and the cost was minimal compared to traditional manual processing. Truly, this is the only possible way to win with retailer chargeback and deduction disputes, at any kind of volume.

Download iNymbus PDF Now  "Amazon Book Distributor Case Study"

But Amazon isn't the only big retailer causing suppliers and distributors deduction headaches. A video game distributor an entire 2 years behind in Walmart deduction processing, was able to implement automated processing in just 2 weeks, and completely catch up on their deduction backlog. Today, they continue to process up to 1,500 deductions a month, all automatically.

Download iNymbus PDF Now  "Walmart Distributors' Deduction Case Study"

Fighting Shipper Chargebacks and Deductions

Recently, iNymbus interviewed Tony Warfield, Vice President of Credit Services and Heather Reso, Senior Director of Credit Services at D&H Distributing. We asked and they answered. Why did you use automation to permanently solve your deduction and chargeback issues with your shippers?

Q: Before you had automation to process deductions and chargebacks, what was the day-to-day or triggering event that made you say, “You know, maybe there’s a better way?”

Tony Warfield: You may have heard of a company called Walmart. Obviously the volumes are incredibly high with the number of suppliers they have, and they are incredibly complex. They would email us these freight issues, and we would basically take data from the email, typing into one system, inputting into another system, and typing into another system. We started looking for some sort of simple, automated solution to manage the kind of repetitive nature of deductions.

Download to read D&H Distributing chargeback case study.

Heather Reso: Yes, Walmart. It was that particular customer. We’d get an email notification, and it went from about 500 a month to 3,000 a month in about two months’ time. They had changed something in their process or system, and we couldn’t keep up. We had two full-time people working on it, as well as the whole team working overtime, before work, after work, and Saturdays, just to keep up with that volume. And if we don’t get responses from the carriers in a certain amount of time, Walmart would deny the claim and not pay us back.

Q: To solve this problem, how did you go about trying to find vendors to consider?

TW: Well two of them we were already engaged with. One was a company that was a full service AR and cash app, almost a VRP type solution for AR and credit. They offered to create a tool for us, and it turned out to be very, very pricey. So we scratched them off the list. The second company we used for proof of delivery and some other things. They again offered to create this sort of thing, but again it was a larger investment. It’s tough to get ROI when you can hire temps for data entry, and moving paperwork around. It just didn’t make sense.

 HR: We’re distributors with a very lean margin, only about 3%, so cost is really a big factor for us. It had to be something that made sense to our business model.

 Q: In what way did you find the iNymbus solution to be different from the competitors?

Download to Read Full Interview

We started looking for a solution. In fact, we went to RVCF to look for solutions. At RVCF, we met with iNymbus and requested a product demo. After the Demo, our CFO was ready to sign at the show, due to our deductions processing issues. We absolutely LOVE iNymbus! Great team, great product. Super-fast implementation.

Rebecca Cassel Distributor, September 2017

We implemented DeductionsXchange because of efficiencies. When you have to communicate with your customers, the big ones have portals, and to communicate and to stay efficient you have to put automated processes in place. These are high volume transaction companies, and everything has now gone back to a transaction level dispute (transaction by transaction) thanks to iNymbus.

Manufacurer September 2017

Contact iNymbus for a Demo!

See the iNymbus software in action disputing and resolving chargebacks for our clients. Find out if your deductions and chargebacks are at the volume and dollar amount where dispute and resolution automation will pay back in spades. Hint: They usually are.