Amazon is one of the dominant marketplace of choice in the industry. They’ve done a fantastic job of building to scale. Amazon was the fourth tech company to reach a $1 trillion market capitalization and is poised to reach $2 trillion.
Such prominence offers merchants tremendous value in selling directly to Amazon. And for others, instead of building an e-commerce shop from scratch, which is time-consuming and expensive, they can create an account on their Vendor Central platform. And use their framework to market and sell your products directly to Amazon's 197 million monthly prospects.
While selling to Amazon is an excellent privilege for selected brands, it’s not all sunshine and rainbows. There are significant risks for merchants, and chief among those risks are payment shortages and chargebacks.
To help you mitigate this significant revenue risk, we shall uncover all the best secrets on Amazon chargeback in this article. You will learn how to recover your money like a pro and mitigate future chargebacks from happening.
What is Amazon Vendor chargeback?
Generally speaking, a chargeback is a forced payment reversal by a cardholder’s issuing bank. Chargebacks happen when a cardholder contacts their bank to dispute the charge for a specific order they placed with a credit or debit card.
But when it comes to amazon vendor chargebacks, we are looking at operational charges and deductions for non-compliance with Amazon’s set standards. As we intimated in the preceding section, Amazon’s automated framework helps the company to scale faster and enhance its customer service.
The problem with Amazon's machine-driven processes is that machines often make mistakes. And when such mistakes happen, it results in deductions and chargebacks, which place a significant burden upon vendors. These fees are not payments requested by Amazon: they are automatically deducted from the vendor's invoice. Thus, the initiative for Amazon to Improve its systems is low.
A recent ILSR study says that “Amazon makes far more from fees on its Marketplace platform than even the cash cow known as AWS.” According to the report, “Amazon’s fees for participating effectively on its store have grown to the point where sellers now give the company about 34% of their earnings — and this has lately become Amazon’s primary revenue stream.” For example, an Amazon 1st party vendor with $10 million in shipments could get fines ranging from $400,000 to $1,800,000 for non-compliance chargeback and shortage fees.
It’s, therefore, in your best interest to understand the various types of chargebacks that Amazon can incur if you want to fix that revenue leak.
Causes and sources of Amazon vendor chargebacks
There are many reasons for Amazon chargeback and shortages, as you will find below. Understand them and be aware of how to avoid or dispute each one.
Advance Shipment Notification (ASN) Accuracy Chargebacks
An ASN is a document that offers detailed information on a pending delivery. The purpose of an ASN is to notify the customer when shipping occurs and provide physical documentation on the shipment so the customer can be prepared to accept delivery.
Amazon will issue you an ASN chargeback when there are missing or inaccurate data in the Advance Shipment Notification or when Amazon does not receive an ASN before your shipment arrives at its fulfillment center.
ASN chargebacks vary between 1% to 6% of the product cost. The particular ASN issue will determine your rate and your compliance rate – the lower the rate, the higher your fee.
And to avoid that nightmare, you should ensure that Amazon receives all relevant documentation that matches the shipment in question.
Plus, immediately you’ve prepared a shipment, do your due diligence – make sure that the number of units in the order matches the information on your ASN. Also, be sure that all tracking numbers are in sync.
Further, be sure to include the expiration date of products if such data is needed. And do submit the ASN after the carrier picks up the shipment to keep Amazon in the loop on impending shipment before it reaches your warehouse.
Receive process chargebacks
The second litmus test on compliance comes after your carrier delivers your shipment to an Amazon warehouse.
Amazon requires vendors to automate this stage for seamless warehouse processing. And failure to achieve such an automated receive process will result in a chargeback.
Under receive process chargeback, you have subcategories such as No PO Label, Barcode, Dunnage, No Carton Content Label, Carton Content Accuracy, Oversized Carton, Overweight Carton, Expired Product. The cost for each category varies.
Purchase Orders chargebacks
Amazon slaps vendors with purchase order chargebacks for non-compliance with Amazon’s purchase orders. Amazon expects the vendor to ship what they agreed on in quantity, specification, and timeframe.
Below are the various purchase order chargebacks you should keep in the note.
- Overage Purchase Order Units: Amazon issues an overage purchase order units chargeback if a vendor sends more product units than what they specified in the purchase order. The dollar amount they chargeback will depend on the overage percentage as defined below:
- 10% of the product cost for overage up to 40%
- 50% of the product cost for overage of 41-90%
- 80% of the product cost for overage above 91%
Hence, it’ll be wise always to ensure that your prepared shipments align with the quantities confirmed in the initial purchase order from Amazon.
- Unconfirmed Purchase Order Units: Amazon issues this category of a chargeback when vendors send products they never confirmed in a purchase order. The dollar amount charged amounts to 10% of the product cost.
To avoid this chargeback, you should always ship products and quantities Amazon confirmed in their purchase order – nothing more, nothing less.
- Purchase Order On-Time Accuracy: If your shipment does not arrive at Amazon’s warehouse within the specified purchase order period, Amazon will place the PO On-Time Accuracy chargeback.
The Carrier Requested Delivery Date (CRDD) and Freight Ready Date (FRD) measure the PO On-Time Accuracy for prepaid shipping and collect shipping, respectively.
Amazon waives this chargeback for vendors with a trailing four weeks of an average on-time rate greater than 90%.
The actual dollar cost for the chargeback is 3% of the product's price for late shipment or if a vendor chooses to reduce the number of confirmed units five days after the beginning of the shipment or delivery period.
If the vendor fails to fulfill a shipment by the PO cancellation date, Amazon will issue a 10% chargeback on the cost of the product.
To avoid PO chargebacks, ensure that your warehouse unit has adequate time to prepare shipments when orders come in.
And do well to constantly take stock of available inventory levels before confirming purchase orders.
Vendors attract the preparation chargeback when they don’t prepare and pack products in line with Amazon’s guidelines for shipment preparation. Amazon requires vendors to bag, bubble wrap, or tape their products when shipping to avoid damage during transportation. That will depend on the product they’re selling.
Hence, if your products are sharp, fragile, or have loose pieces, do well to bubble wrap them. You can tape products with open box lids, loose parts, or openings, and if you're selling products that can easily be damaged or hazardous products containing multiple pieces, box them up.
If your products require protection from damage, dust, or leakage, bagging them will be a good idea, while products with nudity or vulgar language should have a non-transparent covering.
If you package your products in a bag, include a suffocation warning; package multipack items or items with several parts together to avoid separation, and label them as a set.
Clothing items such as socks, accessories, swimwear, bras, sweaters, hats, hosiery, and underwear require the removal of hangers before you ship them to Amazon. And if your product is greater than 18" x 14" x 8" or weighs more than 20 lbs, you should get Amazon's Frustration-Free Packaging program certification on such product.
Direct Fulfilment Chargebacks
Amazon issues this chargeback to vendors that use the direct fulfillment method. These vendors ship orders directly to the end-user through their Vendor Central account, not those sending the product to an Amazon warehouse.
Below are the various direct fulfillment chargebacks you should work to mitigate.
- Cancellation rate chargebacks: These chargebacks result from vendors denying incoming orders or canceling those they already accepted. Each cancellation will cost vendors $10. And to avoid that, double-check and update your product availability to ensure you don’t take orders for out-of-stock products.
- Ship method mismatch chargebacks: Vendors that use a different ship method or carrier than the one specified in the order attract the ship method mismatch chargeback. This category of chargebacks also attracts $10 per issue. And you can avoid it by following the shipping advice in the order.
How to recover Amazon chargebacks and shortages like a pro
This section walks you through how to recover Amazon chargebacks and shortages efficiently. You will learn a simple, better, quicker, and more accessible path to Amazon fee recovery.
With this guide, you won’t have to worry anymore about Amazon chargeback recovery.
Let’s dig in!
Always keep excellent documentation of each shipment.
Although Amazon’s automated systems make commerce more straightforward for both vendors and the company, the framework isn’t perfect. Sometimes, vendors incur costs for mistakes the technology makes. And when this happens, you have to prove why the deduction is meritless to recover dollars that should’ve never been withheld.
If you don’t have adequate documentation to make a good case, you will never succeed in recovering your money. So, keep track of every crucial information on shipment, such as BOLs, ASN, photos of the shipment, carrier documents, and make that available to your entire team.
With that, you can be sure that when a meritless chargeback or shortage case arises, you can have adequate tools in your arsenal to dispute the chargeback effectively.
Know that chargeback is not a cost of doing business
If you’re writing off payment shortages and chargebacks as a cost of doing business, it’s time to rethink that action. Chargebacks have become a massive threat to business sustainability and “business death by chargeback” is no longer a passing joke. It’s a reality. So do yourself a favor and dispute EVERY meritless chargeback.
Another crucial step you can take is to dispute multiple chargebacks at once. Instead of disputing chargebacks on a case-by-case basis, you can save time by selecting chargebacks of the same category and fighting them all at once.
Get outside insight with expert help
Are you fighting alone to reclaim Amazon fees such as chargebacks and shortages? Are you stressed and worried by the number of fee recovery cases you have to file with Amazon to get back your money?
It doesn't hurt to get help from a company such as Chargeguard that specializesin Amazon 1st party (1P) vendor cost recovery as well in 3rd party (3P) Seller cost recovery.
Amazon uses automation in many areas that inadvertently can cause errors. Chargequard has the technology and people with extensive expertise in dealing with Amazon. They have provided cost recovery services for 100's of brands.You might fall short if you don't have such an expert guide to fight your cases.
The Certified Recovery and dispute management specialist's team will help you launch the entire chargeback and shortage recovery plan. You can focus on growing your business while the team works to identify root causes, submit and manage disputes, and track recoveries on your behalf.
What do you get? Fee recovery of up to 70%, recovery as far back as five years, ongoing root cause analysis and supply chain coaching, dashboard visibility throughout the entire recovery process, and much more!