Wholesale distributors know that chargebacks are a critical business process that they must master in order to be a best run business. Because wholesalers run on such thin margins, every penny counts, and the chargebacks process is a great place to start when looking for that extra little bit of margin.
Chargebacks don’t exist in every segment of wholesale distribution, but they do exist in one form or another in many of them. Electrical wholesale distributors call them SPA’s or “Special Pricing Authorizations”. High Tech wholesalers call them “ship and debit” while some other wholesalers might call them indirect pricing or deviated pricing. In any case, chargebacks exist when a wholesaler’s supplier makes a pricing agreement with a wholesaler’s customer. The wholesaler is obligated to fulfill the terms of that agreement regardless of whatever agreement may have existed between the wholesaler and the supplier when the original in to stock inventory was purchased. This can put a strain on the wholesaler’s ability to turn a profit.
To combat this, the supplier will offer the wholesaler the opportunity to claim back some additional funds to allow the overall deal to be profitable. Here’s the catch, though. The wholesaler needs to initiate the process, and he has to absorb the cost of processing it. Therefore, it’s vitally important that he does both things well.
First, a system must be in place to ensure that all supplier funds that are due to the wholesaler are actually claimed. For every claim that goes unfiled, the bottom line is adversely impacted. This can be likened to a retail scenario where a consumer might see an offer for a mail-in rebate in the store or in the local newspaper. This offer is enough to entice the consumer to make the purchase, but by the time they get home, they forget to claim the rebate. The result? Higher overall cost.
Second, even when a claim is filed with the supplier, there is frequently some disagreement about the amount or validity of the claim, resulting in several iterations. This can be costly if not executed efficiently.
So how important are chargebacks? One national electrical wholesaler has gone on record as saying that the amount of chargebacks claimed is equal to the total amount of gross profit of the company. Another recently shared that for every one dollar in profit, they claim as much as four dollars in chargebacks.
To see the automated, efficient chargeback process in action, be sure to stop by the Industries Demo theater 103 at Sapphire Now in Orlando, Tuesday June 3 at 1:00 PM or the Industries Demo theater 102 at 2:00 PM on Thursday, June 5. I look forward to seeing everyone there!