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Amazon Chargebacks: Your operational performance explained

12/21/2021 • Reading time: ca. 17 min • by Trutz Fries

Since Amazon maintains relationships with a large number of suppliers and receives thousands of deliveries every day, it is not surprising that Amazon imposes strict requirements on its suppliers (also known as vendors) to ensure that the collection of the goods runs smoothly.

Amazon always has the customer in mind: If Amazon orders goods from a supplier and the order is confirmed by the supplier, Amazon often directly updates the availability information on the respective listing. However, subsequent delays in delivery from the supplier side mean that Amazon is unable to keept the promise to the costumer.

For each target, Amazon has developed corresponding performance metrics that the supplier must meet. If the supplier does not meet certain performance targets, Amazon sanctions this with so-called Chargebacks (also called "penalty payments" or "compensation payments"). Here's a simple example: Amazon wants invoices for an Amazon order to be sent completely digitally. If the supplier sends a paper invoice instead, a compensation payment of 5 euros is incurred.

Compensation payments = penalty payments = chargebacks
Amazon chargebacks are also called compensation payments or penalties. We use the terms synonymously in the following.

Compensation payments can be incurred at various points: starting with the import, to the preparation for shipment and transmission of the data, to the physical delivery to the fulfillment center, and finally to the invoicing.

In this article, we explain which requirements you must observe as a supplier, which compensation payments are incurred if you do not comply, and how you can file an objection if necessary.

The Operational Performance Dashboard for Vendors

On the Operational Performance page, as the name suggests, you can get key insights into your operational performance as a Vendor from Amazon's perspective.

In Vendor Central, click on "Operational Performance" under "Reports" to get to the dashboard. At the top of the page, you'll find a list of all operational performance metrics sorted by their status, with critical values displayed first. You can see the status, the rate of policy violations, and any compensation incurred during the selected period time.

List of violations, with critical values displayed first
List of violations, with critical values displayed first

If you click on one of the tiles, you will receive further information below it. The eye-catching diagram shows your performance about the specified key figure over time.

the diagram represents your performance over time
the diagram represents your performance over time

Above the diagram, you can also see that a performance target may consist of further sub-targets. In the example above, you can see the diagram for the key figure "ASN Accuracy". The target here is a ratio of no more than 5%. This target is made up of further sub-targets:

  • On-time non-compliance
  • Missing Expiry Date
  • PRO/BOL mismatch

If you click on "All issues", you will see your quota about the overall target of 5%, f.e. throughout the last few months. Click on the respective sub-targets to see the amount of compensation per sub-target.

here you can see the amount of compensation per subgoal
here you can see the amount of compensation per subgoal

Amazon still differentiates between the amounts it waives f.e., due to an objection, and the amounts it insists on ("Charged amount").

To the right of the chart, you get selected key figures for the selected period:

Informationen on the key figure
Information on the key figure

Below, you will find the affected orders (POs=”Purchase Orders”):

Compensation payment per order
Compensation payment per order

Here, you can see per order how many units from the order were affected by the policy violation and the amount of the originally estimated compensation payment.

Clicking on the amount will take you to the transactions for that order, while clicking on the units will take you to the violations page for that order.

Verstöße zu dieser Bestellung
Violations to this order

What are Amazon compensation payments / chargebacks?

Vendors deliver their goods in bulk to Amazon and thus serve as suppliers to Amazon. Vendors are expected to comply with the requirements set forth by Amazon in the Vendor Manual. This means, for example, that Vendors send a complete shipping pre-notification to Amazon before each order or that they deliver on time. If Vendors violate the requirements, a compensation payment is triggered as a result. Compensation payments reduce Vendors' profits because Amazon deducts the penalty payment from profits, so you get paid less.

Types of compensation payments / chargebacks

There are different reasons why chargebacks occur. Chargebacks occur in the case of incorrect orders, problems with the preparation of the shipment, or problems with the transport or collection process. Below, we explain the possible reasons for a chargeback:

Import Documents Late Delivery

If you are importing goods by ocean freight, you must submit the goods invoice and all other required commercial documents to Amazon's service provider CDS (Century Distribution System) by the ship departure date. For airfreight, the notification must be made on the date of departure.

If the specified time window is not met, the compensation payment for sea freight is 50 euros per set of documents per day of delay. For airfreight, the amount of compensation payment is 150 euros per document set per day of delay.

Import Shipment Late Booking

Special lead times apply for the delivery of goods from abroad. If you are importing goods by sea freight, you must book an appointment with Amazon's service provider CDS at least 14 days before the expected staging date. For airfreight shipments, the appointment must be booked at least three days in advance. If a shipment is not booked in time, Amazon cannot ensure that the shipment will leave the point of origin on time and arrive at Amazon on time.

If the appointment booking is not made in time, a compensation payment of 3 percent of the value of the goods will be charged.

Import PO On-Time Non-Compliance

After you have booked a delivery date with Amazon, Amazon will send you back an order confirmation. In this order confirmation, you will find the specified shipping window that your carrier must adhere to.

You will be charged a penalty of 3 percent of the value of the goods if you do not meet the shipping window.

Prep Issues

Cartons and packing materials must adequately protect items during shipping. If items delivered to Amazon are inadequately secured for shipping, the following chargebacks will apply:

  • Foil Bag: a chargeback stating "Foil Bag" means that any item that is required to be packaged in a bag was not packaged or was not properly packaged in a foil bag. For example, liquid items or loose components of a product must be secured in a foil pouch. The amount of compensation is 0.50 Euro per unit.
  • Bubble wrap: a compensation payment with the reason "bubble wrap" means that an item was not properly packed in a bubble wrap. Items made of glass, ceramics, or tableware must be protected with bubble wrap during shipping. The amount of compensation is 0.50 Euro per unit.
  • Wrap: a compensation payment for "wrapping", or "taping", means that an item has not been sufficiently secured for shipping. Items are wrapped to secure loose lids or openings so that nothing falls out of the package during shipping. The amount of compensation is 0.40 Euro per unit.
  • Barcode sticker: each item must have a visible and scannable barcode on the product packaging assigned to an ASIN. Amazon recommends that you regularly test the scannability of the barcode with a cable scanner. You should also note that you may only use one barcode per unit. Under no circumstances may a barcode be applied to multiple boxes. The amount of compensation is 0.30 Euro per unit
  • Carton: if the item was damaged during shipping because the carton did not protect it sufficiently, Amazon must pack the item in a new carton. For the additional work, Amazon will charge a compensation payment of 0.77 Euro per unit.

Ship in own Container

Amazon packs products for shipping to customers in their own boxes. For a few years now, however, Amazon has been wanting to reduce this step more and more and has therefore launched the "Shipping in Original Packaging" and "Frustration-Free Packaging" programs. Read our article on Amazon Certification of Product Packaging to get a comprehensive overview.

In the so-called SIOC program (ship in own container), Vendors design their own packaging suitable for e-commerce, which is shipped directly to the customer. In doing so, Amazon saves itself the work step of packing the items in its own boxes. In addition to lowering the transport costs, the program offers the advantage of requiring less packaging.

The FFP program (frustration-free packaging) goes even further than the SIOC program. Here, the Vendors' goods are also shipped to customers in their own packaging, but in addition, the packaging receives "FFP certification". The certification means that the packaging is easy to open, produces as little waste as possible, is made of reusable packaging materials, and still protects the product from damage as best as possible.

If you are willing to ship products larger than 35.5 x 34.0 x 26.5 cm or heavier than 12.3 kg, please remember that certification for the "Frustration-free packaging" or "Shipping in original packaging" program has been made mandatory since October 1, 2019. If your products are not yet certified accordingly, Amazon will charge a compensation payment of 1.70 euros per ASIN.

Note
Even if the justification is "Shipment in original packaging / Frustrated packaging", it is sufficient if you have your products certified for the SIOC program. You can apply for the FFP certification in addition, but you do not have to.

Exceptions apply to the following products. These are not required to be certified for the SIOC or FFP program:

  • ASINs that are classified as Hazmat: Hazmat is the abbreviation for "Hazardous Material" and this means hazardous substance. Products with lithium-ion batteries, for example, fall under this classification.
  • ASINs of the product categories Fresh or Media: the product categories are food orders
  • ASINs that are at least eight months old (i.e., ASINs that were created on Amazon more than eight months ago) and of which fewer than 700 have been shipped to Amazon in the past twelve months
  • an exception is possible if items are sent to Amazon, but are subsequently shipped to the customer with other items. Amazon packs the individual items in a package to make the best use of the available freight space. If you would like to request the exception, click "Contact Us" under "Help" in Vendor Central. You select the affected product category and then click on "Amazon Certification of Packages". From there, explain your claim and include a figure of the freight packaging
  • Products that are long and thin: for you to certify a product for the SIOC or FFP program, the product packaging must be at least 20.32 cm x 11.99 cm x 0.95 cm. However, packaged items where the longest side is shorter than 20.32 cm or the shortest side is shorter than 0.95 cm or the middle side is shorter than 11.99 cm fall under the exemption and do not have to be certified mandatorily

Carton Content Accuracy

At the Amazon Fulfillment Center, as many steps as possible are automated. This includes attaching a carton contents label to each package, which - as the name implies - lists the contents of the carton. The contents label is scanned when the goods are received so that Amazon has all the necessary information about the carton contents. Packages without a box contents label must be accepted and processed manually by an employee, resulting in a higher workload. The carton contents are also listed on the Advanced Shipment Notification (ASN). Vendors must submit an Advanced Shipment Notification to Amazon for each shipment.

A "Carton Content Accuracy" chargeback means that the Advanced Shipment Notification (ASN) contains incomplete carton contents information or that some cartons in the shipment do not have an identifiable carton contents label.

Affix a carton contents label to each package in your shipment. The label must have a GS1-128 standard SSCC (Serial Shipping Container Code) or an AMZNCC (Amazon Container Code) number as plain text and barcode, a shipping pre-notification number as plain text and barcode, or a complete list of orders. The SSC and AMZNCC codes simplify the automated receiving process. If you are transmitting your advance shipping notification via EDI (electronic data interchange), you will need an SSCC code. If you transmit the advance shipping notice in Vendor Central, you need an AMZNCC number.
Detailed information on the requirements for shipping labels can be found in Vendor Central (opens new window).

The amount of compensation is 0.14 euros per unit shipped without the correct information about the carton contents.

Overage PO Units

Amazon orders from Vendors the number of items they expect to sell. If Vendors do not send the exact number that Amazon ordered, problems can arise. If Vendors don't deliver enough, Amazon can't fulfill customers' orders. If Vendors deliver too much, more warehouse space is needed and it can lead to an overstock of the item.

If Amazon charges you a compensation payment with the reason "Overage PO Units", it means that Amazon received a higher quantity of an item than you confirmed in the purchase order, also called PO (Purchase Order). For example, if ten units of an item were submitted and confirmed in a PO, but Amazon receives twelve units, two units will be credited as over-delivery.

Be sure to ship only the number of units ordered by Amazon. Specify which products are ordered as a package and how many units make up an order. An order may have been submitted multiple times by mistake, or you may have confirmed fewer units than were originally ordered. You can reduce the confirmed number of units up to 48 hours after placing the order in Vendor Central. You are not allowed to increase it.

If you send more units than you confirmed in the Amazon order, you will be charged 0.60 Euro per extra unit.

ASN Accuracy

The Advanced Shipment Notification (ASN) contains all the required information about your shipment. The ASN is a digital notification in which you list the specific contents of the delivery. You specify exactly which products you supply and in what quantities. You transmit the ASN either in electronic format via the EDI interface (opens new window) (Electronic Data Interchange) or via the "Create Invoices" function in Vendor Central. In Vendor Central, click "Manage Invoice" under "Payments" to create an invoice. You can edit the shipping pre-notification up to seven days after it is created. As described earlier, the number of items ordered can be reduced, but not increased, and items can be removed from the ASN. The ASN must be available to the carrier before requesting the delivery date in Carrier Central. Carrier Central is the online dashboard used by the carriers to request a delivery appointment at an Amazon Fulfillment Center. Once the shipment arrives at the Amazon Fulfillment Center, the ASN is automatically matched to the box label. The shipping paperwork must match the shipment exactly.

A compensation claim of "Non-Compliant or Inaccurate ASN" means that Amazon did not receive your shipment pre-notification before receiving your shipment at a fulfillment center, or that information on the ASN was incorrect or missing.

Submit all relevant information on the Advance Shipping Notice for each shipment and provide your ASN's waybill/PRO number to the transportation service provider so they can arrange a delivery date.

Failure to properly submit the ASN to Amazon will result in penalties ranging from 0.07 to 1.70 Euros per unit. Detailed information about the individual fees can be found in Vendor Central (opens new window).

Paper Invoice

After you ship the order to Amazon, you submit an invoice to Amazon. There are two ways to send an invoice to Amazon: You create the invoice in Vendor Central using the "Create Invoice" feature or you use the EDI interface. Electronically created invoices minimize labor and associated costs. Submit your paper or PDF invoices in Vendor Central under "Contact Us" and Amazon will have additional work.

A "Paper Invoice" compensation means that you did not use the options prescribed by Amazon to submit invoices.

In Vendor Central, use the "Create Invoice" function or the EDI interface. Use the interface to automatically create and update invoices.

For any other form of invoice transmission, Amazon charges 5 Euro chargebacks per invoice.

PO On-Time Accuracy

If you have your own carrier ("prepaid" delivery), you are responsible for shipping to Amazon. The carrier must request a delivery window (CRDD: Carrier Requested Delivery Date) on the Carrier Central page in the CARP (Carrier Appointment Request Portal) and deliver the items within this period. Amazon wants to reduce the waiting time as much as possible and therefore carriers must adhere to the agreed delivery window. Likewise, it is important for Amazon that orders arrive on time and are not canceled to allow it to fulfill its promise to the customers..

If the shipping service provider is late by more than 30 minutes and does not adhere to the delivery window at least 90 percent of the time, it will result in a compensation payment for "delivery unpunctuality".

Even if your shipping service provider arrives on time at the Amazon fulfillment center, there is a possibility that due to unforeseeable waiting times, the delivery window cannot be met. If the shipping service provider notices that the delivery is delayed and the delivery window cannot be met, they should contact the ROC (Relay Operation Center) to reschedule the booking. If the carrier does not manage to deliver on the same day, he should also contact the ROC to arrange a new delivery date. For the receiving process to go smoothly, the supplier should have the two documents at hand: the Amazon delivery date number (ISA number) and the waybill documentation.

The amount of the chargeback is 3 percent of the cost of goods in case of an unpunctual delivery. If Amazon automatically cancels the shipment because the order was not delivered by the cancellation date, you will be charged 9 percent of the product cost as a chargeback. You will not be charged the fee if the average on-time performance over the past four weeks has been over 90 percent.

Rejected Delivery

If a delivery does not meet Amazon's guidelines, Amazon may refuse to accept it. For example, Amazon will not accept deliveries if improper pallets are used or vehicles cannot be safely unloaded. In addition, acceptance may be refused if Amazon has canceled an order and it is sent anyway.

A compensation payment on the grounds of "Rejected Delivery" means that your delivery violates Amazon's policies.

The amount of the compensation payment is 290 euros per delivery that is not accepted.

No show

On-time deliveries at the fulfillment center are important for a smooth operation. When items do not arrive on the agreed delivery date, it causes problems with inventory planning. One possible consequence is that Amazon cannot meet delivery promises.

"No show" compensation means that a confirmed delivery date was not met and the carrier did not cancel the date promptly on time.

Discuss the scheduled appointment with your transportation service provider and notify Amazon of the appointment in the CARP (Carrier Appointment Request Portal).

If the carrier does not show up, Amazon will charge you a compensation payment of 290 Euro per delivery.

How do I object to chargebacks?

If you believe that you have been incorrectly charged a compensation payment, you can submit a compensation payment dispute.

To do so, click "Operational Performance" under "Reports" in Vendor Central. Then, click the "View defect list" link in the upper right corner to access the detail page for each violation. There, you will see a list of the individual settlement payments. In the list, you will find the transaction ID, the purchase order, the status of the charge, the date, the product, as well as the amount of the financial charge.

List of all violations
List of all violations

You can narrow down the period under consideration, search for products, and export the list as a CSV file.

To object, click a transaction ID and then click "Dispute this chargeback".

Oppose this compensation payment
Oppose this compensation payment

If you want to appeal several payments, check the boxes next to the transaction ID and if you want to select all of them, check the parent checkbox in the header. Then click "Dispute" next to the table under "Available actions".

Amazon will redirect you to a page where you have to justify the objection.

justify objection
Justify objection

Amazon leaves you only 2000 characters to justify your objection. Thus, it is essential to support the objection with appropriate and correct evidence:

If you receive a compensation payment due to "PO On-Time Accuracy", then you have to prove to Amazon that the forwarder arrived at the fulfillment center on time. You can include screenshots of the carrier in your appeal that prove the carrier arrived on time at the fulfillment center. If you are charged a compensation fee on the grounds of "Prep-Issues", prove with photos that the items were adequately packed in bubble wrap or a foil bag.

You have up to 30 days from the date of the compensation payment notice to file an appeal. If the appeal is denied, you have another 30 days to file another appeal. If the second appeal is also denied, then you can take no further action.

Conclusion

As described, Amazon gives Vendors a lot of specifications for processing an order. If Vendors do not meet the requirements, their profit will be reduced by compensation payments and this can amount to a large sum depending on the compensation payment.

The Performance Report in Vendor Central includes metrics for different types of chargebacks. The dashboard shows Vendors their compensation payment, highlights how violations have decreased or increased over time, and provides tips on how to avoid compensation payments in the future. Vendor Central also allows you to dispute a chargeback if you can prove it is unjustified.

If you want to learn more about the topic, you should read the Vendor Manual. The Vendor Manual contains all the necessary information you need to ship to Amazon. It contains specific information and instructions on ordering, preparing, making deliveries, and delivering products to Amazon's fulfillment center. You can find the Supplier Manual on the Help page under "Resource Center". There, click on "EU wide Vendor Manual" under "Business Process" to download the Supplier Manual.

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