Supply Chain Chargeback Management

Table of Contents

  1. Chargebacks and Your Supply Chain
  2. Who’s Responsible for Chargebacks in Your Company?
  3. Sources of Supply Chain Chargebacks
  4. The Bottom Line on Supply Chain Chargebacks
  5. What Is a Vendor Violation?

Tracking down the root causes of chargebacks can lead you to strange places. Sometimes, the reason code or the cardholder’s stated explanation will point you to an obvious cause, but it’s often the case that the true source of the cardholder’s dissatisfaction is someplace you didn’t expect to find it.

In fact, the root cause of a chargeback doesn’t always fall under your immediate sphere of control. Issues can spring up at any point in the supply chain, impacting the quality or function of your product and causing your end customers to feel cheated or misled.

In a retail business, whoever manages the supply chain—whether that’s the sole proprietor in a small business or a dedicated role in a larger organization—needs to be involved in the planning and execution of your chargeback defense strategies.

Ideally, the supply chain manager should be monitoring chargebacks company-wide, so that they can leverage their knowledge of the vendors and processes in your supply chain to connect the logical dots between supply chain issues and customer chargebacks. Connecting these dots can not only help reduce chargebacks, but improve your business overall by finding issues customers might not be telling you about directly.

Chargebacks and Your Supply Chain

Problems further up the supply chain can lead to your customers not receiving an order on time, or receiving a damaged or defective product. Whether or not you, as the merchant, are responsible for causing or fixing these problems is a moot point to the customer. They paid for a product that works properly and does what it’s supposed to do, and if they don’t get that, they’re going to want their money back and they’ll be looking for the easiest way to make that happen.

If the easiest way for a customer to get a refund is to dispute the transaction with their bank and demand a chargeback, that’s what they’re going to do.

This is one of the reasons it's important for just about every business to have a clear, easy, and generous refund policy. What the exact policy looks like will vary based on what kinds of goods an individual merchant is selling, but most business could benefit from looking at the refund policies their competitors offer and matching or exceeding them. If your customer expects to be able to get their money back for an item and your policy doesn't allow that, they may just file a chargeback instead.

Other aspects of refunds can also incentivize customers to file chargebacks, such as requiring the customer to pay for return shipping. While generous refund policies do mean a loss of some revenue, they're an effective way to prevent certain kinds of chargebacks, and those chargebacks come with additional fees and consequences that refunds don't. In addition, generous return policies can attract customers who may be unconvinced of the quality of your products.

When all is said and done, the liability for chargebacks falls on the merchant. Pointing fingers and saying “actually, it’s our supplier’s fault” is not going to help you fight a chargeback and represent the transaction. Fair or not, identifying these problems and figuring out how to remedy them is the merchant’s responsibility.

Chargebacks can be complex problems with multiple contributing factors, so as with everything else, the buck stops with owners and executives—appointing a fall guy to blame for your chargebacks isn’t going to make them go away. It is, however, a good idea to foster awareness of chargebacks and their potential root charges at every level of your organization.

Who’s Responsible for Chargebacks in Your Company?

In a sole proprietorship or a business with just a few employees, each person wears many hats and it’s obvious that chargebacks are everyone’s problem. In a larger organization with delegated responsibilities, it’s easy for employees who aren’t directly involved in dealing with chargebacks to think that chargebacks aren’t their concern. This, of course, is the kind of thinking that makes it harder for merchants to uncover and address the root causes of their chargebacks.

In many businesses, the employees who don't deal with them directly know next to nothing about chargebacks, which can lead them to unknowingly make decisions that will increase the business's chargeback rate. Once that happens, you may have difficulty tracking down the exact cause of the increase if the people who made the change don't know enough to suspect that it was caused by their actions.

Your marketing department might not think they have anything to do with causing chargebacks, but it happens fairly often: marketers go a little overboard hyping the product, the customer gets unrealistic expectations about what the product can do for them, and when they finally buy it, they’re disappointed—even though there’s nothing actually wrong with it.

The supply chain manager should also

be in the loop when it comes to ongoing chargeback situations. That way, they can figure out if issues with suppliers, manufacturers, or other parties or processes in the supply chain are causing frustration for your customers, and get things back on track where needed.

Treating chargebacks as a company-wide problem can yield benefits that go beyond just reducing chargebacks themselves

. When we talk about “fixing the root causes of chargebacks,” we’re talking about making improvements to crucial elements of your business operations: quality control, fulfillment, customer service, and more. Fixing the problems that lead to chargebacks means that all of your customers will be receiving better service, higher quality products, faster deliveries, and other positive outcomes.

Sources of Supply Chain Chargebacks

When you can trace a chargeback back to the supply chain process, it means that some step in that process has failed, causing inconvenience, dissatisfaction, and unnecessary costs. Here are some common chargeback causes that supply chain managers should be keeping an eye out for:

  • Shipment data is transmitted late or not at all, causing delivery delays or product unavailability
  • Poor or inadequate product packaging, causing damage or late arrival
  • Unscannable or incorrect product labeling, causing customers to receive the wrong items
  • Products not built or shipped to specifications (wrong color, materials, size, etc.)

Remember, though, that not every chargeback will have a cause that’s immediately logical and obvious. If the reason for some of your chargebacks is still a mystery, you have to dig deeper or engage in more sophisticated data analytics.

As with many operational facets of modern business, the supply chain is marching into the future with machine learning and artificial intelligence to automate and optimize it, reducing the workload for supply chain managers and helping to get products to customers faster, more accurately, and with fewer quality issues. That said, human intelligence is still required when it comes to solving subtle, multi-layered problems that can be impacted by multiple processes within a business—such as discovering the root causes of chargebacks.

The Bottom Line on Supply Chain Chargebacks

Understanding the root causes of your chargebacks is the single most important thing you can do if you want to prevent them from happening and keep your chargeback rate down. No matter how good you are at fighting chargebacks, prevention is always cheaper than the cure.

If you don’t figure out the root causes of recurring chargebacks, you’re exposing yourself to getting repeatedly hit with the same kind of chargeback. Root causes within the supply chain can be difficult to trace, because they’re occurring outside of your immediate locus of control and you may not have full visibility into what’s going on with third-party suppliers and manufacturers. The person in your company who works most closely with these parties is in the best position to understand what’s going on and how to fix it, so make sure you explicitly enlist their help in your battle against chargebacks.


What Is a Vendor Violation?

A vendor violation is any action or inaction that violates the terms of the vendor agreement. This typically comes with consequences like payment deductions specified in that agreement. These consequences are intended to incentivize all parties involved in a business's supply chain to meet expectations.


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