The Supply Side: Avoiding and chasing chargeback deductions

The down-in-the-weeds accounting detail is often tedious and tense, but suppliers to Wal-Mart Stores and other large retailers at one time or another have to manage chargebacks created when orders and sales don’t match inventory logs.

One consensus among contributing replenishment specialists is that handling chargeback issues can be very time consuming. There are several common root causes for many of the chargeback deductions, that if understood, can save suppliers time and money, according to Jami Dennis, a retail expert with Rapid Training Solutions.

Following are some of Dennis’ thoughts on pricing and invoicing errors, the important of purchase orders and the issue of “masterpacking.” Some of the notes below also are from language used by Rapid Training instructors who teach supplier courses on chargeback deductions.

PRICING ERRORS
Pricing discrepancies can occur when items are marked down for faster sale by the store. It is important to remember all prices and allowances transmitted to suppliers on the purchase orders have been negotiated by the buyer. By shipping against the purchase order, the supplier indicates they agree with all pricing and allowances. Any pricing disputes have to be resolved by the buyer.

If a pricing or allowance deduction occurs even though the supplier was billed according to the purchase order, the dispute has to be made to the Merchandise Payables department in Walmart’s Shared Services division.

MASTERPACKING
Masterpacking errors happen when smaller items are combined and shipped in one larger carton. While this may save on shipping costs, Wal-Mart’s automated receiving system can incorrectly scan the product quantity, which often creates a shortage in supplier pay.

Here is the example of what can happen: The purchase order called for two cases packed with 48 units, which totals 96. The supplier shipped one master carton package of 96. The distribution center does not open master cartons and scans in the carton containing 48 units. This resulted in a shortage deduction of one full carton. Because the supplier can only provide proof that one carton was scanned at the distribution center, payback of this claim will be denied. At a unit cost of $2.56 that’s $122.88 in lost sales for the supplier on this one order.

To avoid unnecessary adjustments, the supplier needs to ensure that the label description and count match the contents. Wal-Mart, according to Rapid Training, discourages the shipping of masterpacks to distribution centers. Suppliers should only ship in the vendor pack size ordered by the buyer.

INVOICING ERRORS
Three segments of the electronic invoices must match the purchase order for Wal-Mart’s system to read the invoice correctly. A common mistake is an invalid item number or UPC. When the item number on the invoice and purchase orders doesn’t match, an invalid deduction is created, according to Dennis.

Invalid item numbers pop up when a supplier is billing individual item numbers when an assortment of products has been ordered. The supplier must bill using the assortment number because transmitting item numbers will create invalid shortage deductions.

Correct pack quantities are also necessary to fend off unwanted deductions by Wal-Mart. Wal-Mart’s system uses the pack quantity on the purchase order to calculate quantities received and unit pricing. If the pack quantity does not match, it may cause invalid deductions.

The following is an example of an invoice billed with the incorrect pack quantities: The purchase order calls for 577 cases packed by 12 for a total 6,924 units at $3.25. Since the invoice is billing 577 units, Wal-Mart’s system reads this as a price difference $39 per unit versus $3.25 per unit and will deduct $20,627.75 as a pricing claim. The supplier should have billed Wal-Mart for 6,924 units at $3.25 or 577 cases at $39. 

Lastly, Wal-Mart’s system uses the unit type and cost to calculate quantities received and unit pricing. Using an incorrect cost or unit of measure can prompt invalid deductions.

NO PURCHASE ORDER
Wal-Mart will sometimes do a chargeback for purchase orders they claim have not been received. This can occur even after a supplier receives a signed copy of the bill of lading from a Wal-Mart receiving clerk.

How can suppliers fight this so they can get paid? The replenishment experts suggest contacting the distribution center and speaking with the receiving clerk. Ask the receiving clerk to look up the purchase order online and give you the date and time of receipt.

Sometimes the supplier will have look for the person who signed the bill of lading and remind them that they have a signed copy in hand. Once the supplier can get the proof of receipt, they should contact Wal-Mart’s accounting department via the supplier hotline.

EXPERT ADVICE
Chargebacks and deductions can be minimized but it may take a lot of micromanaging. Here are a few tips from Rapid Training to help eliminate or reduce such transactional problems.
• Ship orders in full.
• Do not substitute items.
• Do not use masterpacking to save shipping costs.
• Have regular meetings with your shipping department and production planners to make sure you’re aware of any production issues your replenishment manager might need to know.
• Follow the product all the way from production to retail delivery and make sure to get signatures from the receiving party. It’s a crucial part of getting paid.