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  • Writer's pictureOliver Scutt

Reducing Amazon vendors' Order to Cash cycle aka O2C, vendor cost recovery, revenue recovery

Most Amazon vendors are frustrated with the complexity and effort required to recover the cash that Amazon is withholding from their invoices. It is not unusual to see 20-40% of the prior 12 months of CoGS/invoice value as-yet unpaid despite nominal payment terms in the 15 to 60 day range. This is a lot of working capital tied up, some of which is erroneous, and can result in double digit margin erosion so it is worth fighting for and accelerating maximum reimbursement.

Amazon has little incentive to make this process easy as it is a source of working capital and margin for them. While vendors with ERP systems such as Oracle, Netsuite or SAP can readily see the difference between the invoiced value of products they've shipped and the remittances they've received, such ERP systems fail to give any insight that makes working off the backlog more actionable or more effective. Consequently the main options for vendors are to:

1. accept the chargebacks as a cost of doing business with Amazon

2. use internal employees part- or full time to dispute whatever the time allows for

3. engage a specialist agency & pay them a commission on what is recovered Merchant AI offers a fourth option -- a better toolset to make the backlog actionable that can be used either by your own personnel, or by agents working on your behalf How does this happen? Amazon vendors are deluged with purchase order lines to ship product into Amazon's many fulfillment centers giving many opportunities to make errors. To smooth the flow of information and goods, Amazon has set up stringent operating guidelines that vendors must follow in terms of timeliness, delivery quantity and simplified handling. To encourage improvement, Amazon charges fees for non-conformance back to vendors. Vendors see these fees as chargebacks (think 'fines'), and shortages. Amazon tracks and displays chargebacks in the Reports >> Operational Performance dashboard. Some of the fees are charges based on a percentage of CoGS value, others are charged as cost per erroneous unit. Some fees have a higher probability of being recoverable through the disputes process than others depending on your ability to provide supporting evidence. Most recovery comes from shortages, either because Amazon subsequently finds the goods, or because the vendor can prove that Amazon signed for their receipt e.g. via collect freight. Remittances will always trail and never reach gross invoice value for a period. At any point in time, for any period in time, the difference between invoice and remittance values are driven by multiple factors, including:

- payment terms

- open/disputed chargeback fees (PO rejection rate, PO delivery timeliness, Amazon prep & bagging, ...) not typically disputable, esp. if older than 30 days). A good list of chargeback types is

- open/disputed shortage fees (PO price & quantity variances of shipped vs accepted PO quantity and agreed item costs in past 5 years)

- closed/time-expired/accepted/waived fees

- other 'trade' or one-off fees (freight, damage, disposal, shipping, ...)

- advertising spend

- coop marketing costs ( .. a notorious black box of charges where Amazon expects you to just trust them)

What can be done?

1. Quantify the opportunity -- value open chargebacks by type & prioritize what you can and need to address before the time limit expires

2. Dispute charges you don't agree with (use ASNs & BOL evidence) and prioritize dispute submission given dispute value, likelihood of recovery and deadlines for submission

3. Learn from the charges & change your PO acceptance/shipping/disputes process by performing a root cause analysis to identify and fix operational problems at source within your business so that they don't recur

4. Prepare for your annual contract negotiation when you might agree how to split and close out any remaining disputes up to a point in time

The challenge is understanding the difference between the invoiced and paid value as well as learning from the operational excellence issues to fix the problem going forward.

Money is held back by Amazon and may never be paid for many reasons:

- Inside the payment terms window

- Shortage vs the invoiced quantity

- Chargebacks for some order defect

- Coop marketing charges

Some disputes get resolved over the course of the the year, the remainder is may be subject to a negotiated percentage waiver at contract renewal time up to those of a certain age, potentially on the basis that the vendor or the requirements were new and that process improvements are already, or are projected to deliver benefits over the next few months

How MAI can help. 1. MAI will summarize your vendor central accounts receivable status and historical chargeback types within 1-7 days depending on number and size of vendor central accounts. This processes summarizes POs, invoices, remittances and operational performance metrics

2. For a fixed fee per month, you can continue to use the MAI toolset to continuously identify, prioritize and track dispute status as your, or your agent works down the backlog. Expect at least a 2x productivity improvement from your agents over the Amazon toolset, as well as insight reports into the root causes worth fixing at source.

3. If you don't have personnel availability to work the problem, we have a network of people to get you over the hump on a commission basis.


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