Chargeback
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is chargeback?
A chargeback is money taken back after a sale, either as a customer’s penalty on a supplier or as a distributor’s claim on a manufacturer. The first, a compliance chargeback or deduction, is subtracted from a supplier’s payment for breaking the customer’s shipping or paperwork rules. The second, a contract chargeback, recovers the gap between the distributor’s cost and a lower contract price it sold at.
How it works
Compliance chargebacks cover errors such as a missing ASN, wrong labels or a late delivery, and arrive as short payments that accounts receivable has to research. Contract chargebacks are standard in healthcare and pharmaceutical distribution, where a distributor sells at a GPO contract price and the manufacturer covers the gap, much as in ship and debit.
Chargeback example
A $4,000 invoice is paid as $3,850 with a note citing a missing ASN, and accounts receivable records a $150 deduction to research.
Related terms
- Ship and debitShip and debit is an arrangement in which a manufacturer lets a distributor sell to one customer or project below its normal cost, then repays the gap.
- Group purchasing organization (GPO)A group purchasing organization (GPO) is an organization that negotiates supply contracts for members that buy and use the products, such as hospitals.
- Advance ship notice (ASN)An advance ship notice (ASN) is an electronic message a supplier sends before a shipment arrives, listing its contents, packing and expected arrival.
- On-time in-full (OTIF)On-time in-full (OTIF) is the percentage of orders delivered both complete and within the agreed delivery window.
- Accounts receivable (AR)Accounts receivable (AR) is the money customers owe a company for goods already delivered and invoiced but not yet paid for.
