If you run a retail business, you’ve probably dealt with a customer — or their bank — disputing a transaction and requesting a refund, known as a chargeback.
Chargebacks are common in retail, but they don’t always happen for the reasons you might expect. More often, what causes them are preventable mistakes like shipping issues, paperwork errors, or mislabeled products.
The bad news? Retail chargebacks eat into your profits, strain vendor relationships, and slow operations. The good news? With the right strategies, you can reduce chargebacks — or, better yet, avoid them altogether.
In this guide, we’ll tell you what you need to know.
What’s a Retail Chargeback?
Retail chargebacks are financial penalties that businesses issue to suppliers when orders don’t meet agreed-upon terms, such as late shipments, incorrect invoices, missing advanced ship notices (ASNs), or damaged packaging.
Unlike credit card chargebacks, which result from customer disputes, retail chargebacks only happen between trading partners. Large retailers like Walmart set strict compliance standards, and even minor errors — like shipping outside the required delivery window or failing to follow labeling requirements — can cause significant fees.
To curb retail chargebacks, many suppliers use Electronic Data Interchange (EDI), which automates tasks like billing, routing, and inventory updates. With the right EDI setup, data stays clean and consistent across systems, lowering the risk of chargebacks.
Why You Should Care About Retail Chargebacks
Whether you're a vendor, manufacturer, or supplier in the consumer packaged goods (CPG) space, here are a few reasons to take chargebacks seriously:
Costs add up quickly: Every chargeback comes with fees and penalties that cut into your revenue. One or two minor mistakes, like a shipping error or incorrect routing, might not seem like much, but when they happen often, the costs add up fast.
Relationships with retailers take a hit: When chargebacks happen repeatedly, they strain relationships with retail partners, possibly hurting your chances of future collaboration.
Chargebacks expose operational gaps: Behind most chargebacks is a breakdown in systems, be it shipping, inventory, or billing. These issues are often connected to broader EDI challenges that stem from outdated or manual processes.
Cash flow gets disrupted: Chargebacks delay payments and create disputes to resolve with the issuing bank, tying up revenue you need to keep your business running day to day.
6 Common Reasons Why Chargebacks Happen
Retailers issue chargebacks for many reasons, some more common than others. Here are six you’re most likely to encounter:
1. Early or Late Shipping
Timing is everything, especially in EDI logistics, where delivery windows are automated and standardized. Arriving early creates storage problems for the retailer, while showing up late might leave the shelves empty. Either way, poor timing disrupts the retailer's operations — a common cause of chargebacks.
2. Shipping Errors
Using the wrong carrier or delivering to the incorrect address might seem like an easy mistake to avoid, but it happens. Most major retailers provide strict routing guides and require trading partners to follow specific EDI standards to prevent these issues. Failing to meet those requirements puts you at risk of chargebacks for noncompliance.
3. Damaged Products or Packaging
No retailer wants to receive dented boxes or damaged goods for obvious reasons. They look bad on the shelves, and people are less likely to buy them. Poor packaging negatively affects both shelf appeal and customer satisfaction. Many retailers automatically issue chargebacks for damaged shipments, flagged by RFID or scanning tools at receiving.
4. Quantity Mistakes
Retailers expect to receive exactly what they ordered, especially when inventory systems are synced with EDI documents like purchase orders and ASNs. Sending too many or too few units disrupts stock counts and delays restocking — inconveniences that often trigger chargebacks.
5. Incorrect or Noncompliant Labels
Labels might seem like a small detail, but getting them wrong can cause big headaches that slow down receiving and lead to chargebacks. Conversely, clear, accurate, and compliant shipping labels allow retailers to process shipments faster and get products on shelves sooner.
6. Invoice and ASN Errors
Retailers use invoices and Advanced Shipping Notices (ASNs) — electronic documents that tell them what’s on the way — to verify that the shipment details like quantities, product descriptions, delivery dates, and billing information line up. If they don't, it raises red flags and can cause chargebacks for data mismatches or processing delays.
How to Prevent Chargebacks: 10 Strategies
Retail chargebacks hurt your brand and your bottom line, but the right strategies can help you reduce or even eliminate the most common causes. Here are 10 to consider:
1. Make Your Return, Refund, and Cancellation Policies Clear
Ambiguous policies lead to disputes. When your return, refund, and cancellation terms aren’t clear and something goes wrong, customers are more likely to contact their bank instead of you. A clear, easy-to-understand policy builds trust and gives customers a reason to reach out to you first before escalating to a chargeback.
2. Confirm Customer Orders
Double-checking orders before processing — especially in high-volume or B2B scenarios — helps catch mistakes that trigger credit card chargebacks. Sending customers an order confirmation email that outlines the full transaction details helps them know exactly what to expect.
3. Provide Good Customer Service
Sometimes, all it takes is a quick conversation to resolve the issue before a frustrated customer calls their bank to dispute the charge. Handle it well, and you might even turn them into a loyal regular.
4. Use a Clear Billing Descriptor on Customer Statements
If customers don’t recognize your name on their credit card statement, they might think the charge is fraudulent and dispute it. Using a clear business name and contact information helps prevent unnecessary chargebacks.
5. Delay Billing
If you charge customers before their order ships or arrives, you increase your chances of chargebacks. Billing only after shipment or delivery reduces that risk.
6. Obtain Proof of Customer Participation
If a customer claims they never received their order and issues a chargeback, you’ll need proof to challenge it — like a signed delivery confirmation, order receipt, or shipping record. Sharing this information with the customer upfront, before they contact their bank, might resolve the issue directly and possibly stop them from filing the chargeback.
7. Leverage Strong Customer Authentication Rules
Many banks and payment providers now require Strong Customer Authentication (SCA) for online purchases. SCA adds an extra layer of fraud protection by verifying the cardholder’s identity, helping stop fraudulent transactions — including purchases made with stolen credit cards — before they happen and reducing the risk of chargebacks on your end.
8. Cancel Recurring Transactions Promptly
When customers cancel a subscription or service, stop billing them immediately. Continuing to charge after cancellation is one of the quickest ways to trigger a chargeback. Be prompt, and make sure your customer service team confirms the cancellation in writing.
9. Update Expired Cards
Expired or invalid credit cards often result in failed payments, confused customers, and eventually disputes. Many payment processors offer account updater tools to keep card information current and reduce failed transactions.
10. Draw on the support of your payment provider
Don’t handle chargeback disputes alone. Many payment processors offer tools to track chargebacks and even resolve disputes. Take advantage of their expertise and support to stay ahead of potential issues.
How Prevalidation Prevents Data from Reaching Trading Partners
Prevalidation works like a built-in quality check for your data. It reviews every document before sending and blocks anything that doesn’t meet your trading partner’s requirements. Catching errors early — like missing or incorrect information — saves you from bigger problems, including chargebacks.
But when you’re managing multiple trading partners, going over every document by hand isn’t realistic. Cloud-based EDI solves this by automating the process, helping reduce mistakes — and the penalties they cause — to keep operations running smoothly.
Talk to an EDI Expert
If you’re seeing frequent chargebacks or compliance issues, it may be time to rethink your approach. An EDI expert can help you find the gaps in your process and recommend the right platform, so your data meets partner requirements every time.
Ready to take control of chargebacks, simplify your supply chain, and optimize operations? Contact an EDI expert to get started.