Over the last two years, you will have noticed that the world has a serious supply chain problem. Empty grocery store shelves and skyrocketing prices for everything from everyday essentials to games consoles has heightened the issue.
The term ‘Chain’ is important here because what happens at one part has knock-on effects further down – including a likely increase in chargebacks. If customers are not getting the goods they order on time, then many will initiate a chargeback, which will end up costing significantly more than a refund and could contribute to your company being charged more for every transaction.
Here, I’ll explore where the supply chain crisis has come from, how is it affecting chargebacks and what can be done to stop it from affecting your business.
Where has the supply chain crisis come from?
Some of the first places hit hard from the COVID-19 pandemic were major manufacturing centers – China, Vietnam, South Korea, and Taiwan. Factories at these locations shut down or slowed down production and the shipping companies who take their finished goods across the world also slowed down operations in anticipation of less demand.
In other sectors there was clearly decreased demand – restaurants, bars and vacations were all almost non-existent for several months early in the pandemic. However, there was a huge spike in demand for other types of consumer goods – workers buying office equipment for their homes, those deciding to renovate their homes or start new hobbies, families buying new televisions or game consoles to stave off boredom. This should have resulted in factories and shipping companies increasing production to meet the new demand, but a short period of decreased demand meant a bottle neck in the international shipping system, with even the containers used to ship goods across the world being in short supply. The cost of shipping skyrocketed, and the sudden influx of ships overwhelmed the capacity of ports like Los Angeles and Oakland at a time when dock workers and truck drivers were also in short supply due to the pandemic.
This was compounded by decades of lean Just-in-Time logistics practices meaning there was little in the way of warehoused goods to fulfil demand, meaning that the crisis is still ongoing.
How is it affecting chargebacks?
Those companies that rely on shipping physical products to customers will be affected by the supply chain crisis. And not just those that send products overseas – domestic shipping has been affected by increased demand and fewer delivery drivers. Inevitably, this means that customers will be getting their products later or not at all. Although many will contact merchants directly to resolve issues, some will simply initiate a chargeback. ‘Goods not received’ chargebacks are meant to be used if merchants refuse to refund customers for goods that are not delivered, but too many consumers consider it a first-line solution to their problems, largely because in most cases chargebacks are highly likely to get their money refunded.
Having a surge of chargebacks at a time when there are serious supply chain issues could be devastating for many merchants. They cost significantly more than refunds, include fees levied by the acquiring bank and take time to process, particularly if you intend to dispute them. Should your company receive enough chargebacks your acquirer may decide that your company is risky, and will therefore increase their processing fees, meaning that every transaction will cost more.
What can you do to stop chargebacks affecting your business?
The first fix is to offer robust, easy to use package tracking for all your deliveries. Even if you have to pay more for this service, you are likely to find that it will save money overall. Furthermore, you should make sure that requesting a refund for an item that does not arrive is easy. If customers can request refunds easily then they will choose that option over the relatively more difficult process of initiating a chargeback. Refunds are not ideal, but they are preferable to chargebacks. If your company is experiencing delivery delays, then perhaps send an email to customers outlining what they should do if their package is delayed. Finally, investigating chargebacks to identify those that were legitimately filed also provides vital feedback that can be used to provide insights for improvements and help reduce repeat issues.
