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The Secret Sauce
by: Byron McKinney | January 3, 2024

Spice up your profitability with distributor chargeback management

In the wholesale distribution industry, where the distinction between profit and loss is small, you must take precautions to safeguard your margins. Managing multiple files from different vendors in crucial revenue lifecycle areas — such as chargeback management — presents significant business challenges.

Chargebacks are a critical part of the wholesale distribution industry, accounting for up to 40% of distributors’ profits.

Distributor Chargeback Management

What are chargebacks?

Chargebacks come in different forms, including ship and debit, deviating pricing, reported sales, deletion allowances, special pricing authorizations (SPAs) and indirect pricing. Generally, chargebacks are the amounts of money distributors receive from manufacturers after fulfilling specific sales performance requirements.

Distributors who follow particular vendor agreements submit claims to the manufacturer as a result of sales interactions with customers. These claims are frequently settled with checks, fund withdrawals or credits over a predetermined time frame.

• The average wholesale distributor loses 0.5% of its revenue to chargebacks each year. 
• 75% of wholesale distributors plan to increase their investment in data and analytics in the next 2 years. 

Sources: Modern Distribution Management, National Wholesale Distributors Association

The pros

Chargebacks can be beneficial for your wholesale distribution business in several ways:

  • Cost recovery
    Chargebacks allow distributors to recover costs from vendors for various reasons, such as late shipments, incorrect pricing or damaged goods. This helps distributors maintain their margins and profitability.
  • Revenue growth
    By implementing chargeback programs, you can capture all eligible chargeback revenue.
  • Improved vendor relationships
    Chargebacks improve vendor relationships by providing transparency and accountability.

Distributor Chargeback Management

The cons

Chargebacks also have some downsides you should be aware of:

  • Complexity
    Chargebacks require significant management controls to ensure accuracy and compliance with legal requirements.
  • High error rates
    The volume of transactions through chargeback programs is enormous, leading to high error rates if not managed effectively.
  • Manual efforts
    Without automation, chargeback programs can be difficult to manage.
  • Missed sales targets
    When a customer disputes a charge, you are typically required to refund the customer and return the merchandise, resulting in a loss of revenue and profit.
  • Damaged reputation
    Customers who dispute a charge may be unhappy with the product or service received. This can lead to negative reviews, hurting your business.

Data-driven solutions: the recipe for success

Your chargeback success hinges on the ability to harness the power of data-driven technology. With the right solution, all activities and interaction points — including price, inventory, financial planning, sales execution, cost accounting, billing and purchasing — can be effectively managed. Additional advantages include:

  • Margin maintenance through cost recovery
  • Calculating chargeback amounts-due automatically
  • Retroactively processing eligible transactions
  • Eliminating revenue leakage associated with errors and missed opportunities
  • Protecting pricing and profit

With a solution that provides centralized and automated management of your chargeback programs, you can focus on execution, analysis and alignment with business objectives, not on maintaining spreadsheets.

Profit parfait

Chargebacks can be a formidable, complex and time-consuming challenge for you and other wholesale distributors. Implementing data-driven technology, ensuring transparency over every contract and automating your rebate and chargeback processes allows you to use data to deliver an outcome-based customer experience, drive more intelligent and innovative decisions, and ultimately achieve chargeback success.