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.
There are a lot of windmills on Amazon. They are called “shortage invoices” or “shortage invoices”. De facto, these are invoice reductions by Amazon for goods not delivered or too little delivered by the vendor. In principle, there is nothing to be said against 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, reviewed a wide variety of requirements, put processes to the test, and helped optimize them. We estimate that a vendor loses up to 10 percent of its Amazon revenue due to Shortage Invoices and Chargebacks . This pushes margins down significantly.
How are shortage claims created?
Invoice reductions occur when there is a discrepancy between the quantities you charge Amazon and the quantity Amazon has collected in its fulfillment centers. The variance results in a “Purchase Quantity Variance (PQV) and a claim against you by Amazon.
This seems plausible and logical at first, but the devil is in the details.
Let’s look at this specifically:
A shortage 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 the booking process
- Incorrect or unclear catalog data leads to incorrect receipts at Amazon
Determining the correct causes and collecting unauthorized reductions is a Sisyphean task; although Amazon offers various dashboards and data on the subject in VendorCentral, they first have to be laboriously linked with each other 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 the goods receipt at Amazon works.
There is no classic incoming goods inspection, but the collection in the fulfillment centers is completely based on data (as always with Amazon).
A typical sequence looks like this:
This means that many shortage claims can be ruled out in advance 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 transmitted to Amazon with the ASN
- The ASN is sent to Amazon before the shipment goes on its way
- The delivery reaches the Amazon FC within the delivery window
- There are no bar codes for the individual product on the VE cartons
A clean process chain and accurate verification of which system transmits which data to Amazon (e.g. via EDI) can reduce troublesome invoice cuts by up to 90% while helping to avoid chargebacks.
[box] Mini-series – Tips from the field: In this series, we continuously publish new findings, tips and insights and constantly supplement this blog post[/box]
Tip 1: Understand Amazon correctly
Amazon operates differently than most other retailers. It is highly automated and is still growing rapidly after more than 20 years. 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 is important to understand Amazon and its processes and to adapt your own processes to their specifications.
Yes, it can be time-consuming and annoying, but once implemented, everything will run much more smoothly, 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 high sales periods, for example before Prime Day, before Cyber Week or before Christmas, the transport capacities are tight and delivery windows are difficult to meet.
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 here that Amazon always charges at the Purchase Order (PO) level.
Now, if a delivery arrives at the Amazon Fufillment Center outside of the delivery window, the PO in question may already be closed. This means that the employee in goods receipt can no longer post the received goods 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 shortfall in the already closed TOE and an overdelivery in the second TOE. Amazon will open a Shortage Claim for the first PO and reduce your invoice, but will not give any indication of over-delivery.
Tips to Avoid the Shortage Claim:
- Streamline your order entry process, process POs first thing, early.
- Avoid deliveries via hubs. Determine what quantities are required for direct deliveries and adjust minimum order quantities as necessary.
- Check if they can reasonably ship FTL (full truck load) and use Amazon Freight Service for that.
Tip 3: Packaging units and re-cartons:
Working at Amazon Goods Receiving is a stressful job. Pallets and parcels are piling up, supplies are constantly rolling in – it’s all about maximum speed here.
The incoming cartons are scanned and then assigned. If you use re-cartons on which the barcode of the individual item is printed, this poses 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 sorted directly in the warehouse, since Amazon assumes that it contains a unit of the individual item. It is only when there is a customer order and this carton passes over the checkweigher in the outgoing goods department that it becomes apparent that the carton actually contains several items.
For example, if the item’s packaging unit is four, that means Amazon will post only one item instead of the four, and you will receive a shortage claim for the remaining three.
Tips to Avoid the Shortage Claim:
- Avoid barcode label of the individual product on outer cartons
- Use carton content labels (GTIN) instead.