Overdue payments and open items are the horror of any accountant. It gets even more gruesome when collecting overdue receivables is like tilting at windmills.
At Amazon, there are many windmills. They call themselves “shortage invoices”. De facto, these are invoice reductions by Amazon for goods not delivered or delivered too little by the vendor. In principle, there is nothing wrong with this, if it were always clear and comprehensible. – But unfortunately it is not!
And it is not easy to understand what happened to the goods that allegedly did not arrive at the Amazon warehouse.
In our 12 years as an Amazon agency for vendors, we have looked into many VendorCentrals, checked a wide variety of requirements, put processes to the test and helped with optimization. We estimate that a vendor loses up to 10 percent of its Amazon revenue due to shortage invoices and chargebacks. This puts a significant downward pressure on margins.
How do shortage claims happen?
Invoice shortages occur when there is a discrepancy between the quantities you bill to Amazon and the quantity Amazon has collected in its fulfillment centers. The discrepancy results in a “Purchase Quantity Variance (PQV) and a claim from Amazon against you.
This seems plausible and logical at first, but the devil is in the details.
Let’s look at this specifically:
A shortfall in your deliveries to Amazon can have several causes:
- You as a supplier have actually delivered less than ordered, but charged the full quantity
- Part of the shipment was lost in transit
- Amazon has made a mistake during posting
- Incorrect or unclear catalog data lead to incorrect receipts at Amazon.
Determining the correct causes and collecting unjustified reductions is a Sisyphean task. Although Amazon offers various dashboards and data on the subject in VendorCentral, these must first be linked to each other in a time-consuming process and additional information from other systems (e.g. packaging units or BOLs and PODs of the carriers) is necessary.
To make it easier for the contradiction Sisyphus, it is important to understand how goods receipt works at Amazon.
There is no traditional receiving inspection; instead, receipt at the fulfillment centers is based entirely on data (as is always the case with Amazon).
A typical process looks like this:
This means many shortage claims can be eliminated up front if the vendor’s internal processes are 100% aligned with Amazon’s specifications.
Some concrete approaches are:
- Each carton has a scannable carton contents label (SSCC) and the data is sent to Amazon with the ASN.
- The ASN is sent to Amazon before the shipment goes on its way
- The shipment reaches Amazon FC within the delivery window
- There are no barcodes on the VE cartons for the individual product
A clean process chain and accurate verification of which system is transmitting which data to Amazon (e.g. via EDI) can reduce nuisance invoice cuts by up to 90% while helping to avoid chargebacks.
[box] Mini-series – Tips from the practice: In this series, we continuously publish new findings, tips and insights and constantly add to this blog post[/box].
Tip 1: Understand Amazon correctly
Amazon works differently than most other retailers. It’s highly automated and, after more than 20 years, is still putting forth rapid growth. In 2021 alone, Amazon has doubled its logistics capacity worldwide!
In order for order processing and delivery of goods to Amazon to run smoothly, it’s important to understand Amazon and its processes and adapt your own operations to their specifications.
Yes, this can be time-consuming and annoying, but once implemented, everything will run much smoother, penalties and invoice reductions will be drastically reduced, and internal overhead will also decrease significantly.
Tip 2: Deliver within the delivery window
Yes, I know: The delivery window specified by Amazon is tight, very tight… Especially in the peak sales periods, for example before Prime Day, before Cyber Week or before Christmas, the transport capacities are tight and delivery windows are difficult to adhere to.
Nevertheless, and even if it sounds strange at first: adhering to the delivery windows is important in order to avoid shortage claims.
It is important to understand that Amazon always invoices at purchase order (PO) level.
If a delivery arrives at the Amazon fulfillment center outside the delivery window, the PO in question may already be closed. This means that the employee in the goods receiving department can no longer post the goods received to this PO.
What does he do?
He simply takes another PO that is still open and contains the same ASIN and posts the goods receipt to it. The result is a shortage in the already closed PO and an overdelivery in the second PO. Amazon will open a Shortage Claim for the first PO and reduce your invoice, but will not give any indication of the overdelivery.
Tips to avoid the Shortage Claim:
- Streamline your order entry process, process POs first thing, early.
- Avoid deliveries through hubs. Determine what quantities are needed for direct deliveries and adjust minimum order quantities if necessary.
- Check if it makes sense for them to ship FTL (full truck load) and use Amazon Freight Service for that.
Tip 3: Packaging units and re-cartons:
Working in Amazon’s receiving department is a stressful job. Pallets and packages are piling up, supplies are constantly rolling in – it’s all about maximum speed here.
Incoming cartons are scanned and then assigned. If you use re-cartons on which the barcode of the individual item is printed, there is a huge risk of mis-receipt.
The employee scans the barcode in a hurry, the Amazon system knows this EAN and assigns it to the individual item. The carton is not opened, but directly sorted in the warehouse, because Amazon assumes that it contains a unit of the single item. Only when there is a customer order and this carton passes over the checkweigher in the outgoing goods department does it become apparent that the carton actually contains several items.
For example, if the item’s packaging unit is four, this means that Amazon will only post one item instead of the four, and you will receive a Shortage Claim for the remaining three.
Tips for avoiding the Shortage Claim:
- Avoid barcode labels of the individual product on outer cartons.
- Use carton content labels (GTIN) instead.