Freight and warehouse chargebacks

Chargebacks are a fine or penalty that a retailer will levy against the vendor (you). If you are assessed a chargeback, the fee is deducted from what they owe you on the invoice. Chargebacks can be assessed for reasons such as improperly attached hang tags, the wrong kind of hangers, incorrectly labeled packaging to say nothing of failing to meet freight and warehousing standards the retailer requires -which is the subject of today’s post. Yes, I know. Thrills and chills abound with topic selection on F-I. In addition, the inability to assess chargebacks may be one reason an established retailer will hesitate to accept goods from a vendor who requires payment prior to shipping the goods.

Anyway, one of the reasons DEs should be wary of selling to department stores is chargebacks. Or rather, unreasonable chargebacks. Unfortunately, it can be difficult to define unreasonable because that presumes you understand the difficulty associated with being on the processing end of your shipments. If you’re on the shipping end, your operation is small and you’ve never worked in the receiving end of retail, how can you know that receiving your goods is a smooth process for the retailer? Unfortunately, outside of what I’ve seen on this blog, there doesn’t seem to be much education on the matter.


In The Importance of Product Identification, Miracle goes to some length describing the biggest aggravations with processing goods from small companies and what to do about it. In a small or new operation, shipping and packaging usually seems to get the short end of the stick because, let’s face it, you’re just relieved you got the really hard stuff like production out of the way. Now, because DEs are known to have problems in this area, retailers are less likely to sign purchase orders with you. However, if you’re known to sell to some department stores, even independent retailers will assume you have your packaging and shipping issues tied up neatly and they’ll be more inclined to buy from you. So, the object here is not necessarily to have department store customers but to should ship as though you did and according to those standards. Toward that end, please review parts one and two of the aforementioned post. To get an idea of what it takes for a store to process your goods to send to customers (in the case of mail order stores etc) please review Fulfillment centers too.

This post was inspired by somebody who sent me a list of one retailer’s freight and warehouse chargebacks yesterday. Included are the financial penalties for non-compliance. Please review these infractions and listed penalties for non-compliance. Of course, I removed the name of the company. I’ll describe the company as mainly a brick and mortar retailer with over 100 boxes around the US. They’re not the biggest outfit but they run respectable sales figures. The company is privately held so profit or loss numbers are not available. Description aside, this retailer is very average; their policies are not considered to be overly stringent or demanding. Since I am uncertain as to which of these infractions bear an explanation, please sing out in comments. Then maybe we can get Miracle on here to explain them.

Freight Chargebacks
The following is a list of freight violations and the related penalties that Clothing Store will assess to vendors for non-compliance with our routing instructions. These chargebacks will be taken against the vendor’s invoice prior to payment .

  1. Failure to comply with purchase order freight terms
    penalty: $50.00 handling + all freight charges.

  2. Un-authorized air freight
    penalty: $50.00 handling + all freight charges.

  3. Failure to ship the order via the Clothing Store preferred carrier list
    penalty: $50.00 handling + all freight charges.

  4. Failure to comply with UPS on-line PLD requirement
    penalty: $1.00 per carton + $ 50.00 handling charge.

  5. Failure to ship samples freight pre-paid
    penalty: $50.00 handling + all freight charges.

  6. Accessorial charges to Clothing Store from non-preferred carriers
    penalty: $50.00 handling + all freight charges.

  7. Failure to consolidate same day shipments
    penalty: $50.00 handling + all freight charges.

Warehouse Chargebacks
The following is a list of warehouse violations and the related penalties that Clothing Store will assess to vendors for noncompliance with our route guide and purchase order instructions. These chargebacks will be taken against the vendor’s account prior to payment.

  1. Failure to comply with distribution center UPS shipment policy (10 cartons maximum per day)
    penalty: $ 5.00 handling + $ 25.00 for each carton over the limit.

  2. Failure to provide a detailed packing slip with the shipment.
    penalty: $100.00

  3. Failure to pack styles per purchase order instructions in a shipping quality carton .
    penalty: $15.00 handling + 5% of cost on the invoice (max. $500.00)

  4. Failure to side-mark cartons per packing instructions.
    penalty: $15.00 handling + $ 3.00 per carton (max. $500.00)

  5. Failure to attach price tags to merchandise correctly per purchase order instructions
    penalty: $15.00 handling + $ .10 per item (max. $500.00)

  6. Unauthorized style, color or size over-shipment
    penalty: $ .50 per item + freight cost in and out (no maximum)

  7. Unauthorized shipment of merchandise, which is past the purchase order completion date
    penalty: $2.00 per carton or $.25 per hanging unit + freight cost in and out (no maximum)

  8. Un-scheduled delivery to the Clothing Store warehouse via the vendor’s house truck.
    penalty: $100 .00

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7 comments

  1. Esther says:

    When I worked with a company that sold to the Big Box guys, we had two logistics people to handle packing and shipping details – one over the packing, the second to coordinate with various carriers. It is the responsibility of the manufacturer to obtain, read, study, and implement the packing and shipping specs from the retailer. This includes quality inspections of printing labels, hang tag placement, etc. And believe me this can easily become a full time job if you deal with several big box retailers.

    This list doesn’t seem too bad, but it is easy to see how quickly the charges can add up. An unreasonable charge would be one that was not included on the specifications. A rule change in the middle of order fulfillment can be considered unreasonable. I have seen chargebacks for additional items like unsold merchandise and store promotions.

  2. Thomas Cunningham says:

    am going through this with my first shipment to major retailer right now — you haven’t even mentioned EDI yet.

  3. J C Sprowls says:

    Esther,

    You mention that some retailers will chargeback based on unsold merchandise. Isn’t that the same thing as guaranteeing their order will sell-through?

    Umm… whose order is it? *sigh*

    Do I, as a manufacturer, get to counter offer their “chargeback for unsold mdse” penalty w/ a “30% f/end load to manage their mistakes” fee?

  4. Esther says:

    J.C., you’re right. Charging back for unsold merchandise is the same as guaranteeing sales, except without the benefit of signing an agreement beforehand. I have seen a lot of sneaky chargebacks slip through. Most retailers are upfront about charges, but there are those few that are not.

  5. andy says:

    Can anyone shed some more light on chargebacks/returns for unsold merchandise? As a new DE, I wrote numerous orders for one buyer last Fall, however, the buyer is wanting to return some of the goods since certain styles did not sell. Is this common?

    Perhaps naively, I was thinking since the orders were not made as some kind of consignment agreement, nor was there any kind of sell-thru guarantee made, the buyer would have to assume the risk on all of the styles that got ordered.

  6. Kathleen says:

    I wrote numerous orders for one buyer last Fall, however, the buyer is wanting to return some of the goods since certain styles did not sell. Is this common?…I was thinking since the orders were not made as some kind of consignment agreement, nor was there any kind of sell-thru guarantee made, the buyer would have to assume the risk on all of the styles that got ordered.

    You’re too nice Andy. You need to trust your gut more. No, you should not take the goods back in the absence of any agreement. You can be nice but firm, stick to your guns.

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