Artificial intelligence has the capacity to delve into the complexities of the interactions – including financial dealings -- between retailers and suppliers like never before. That could and should be a good thing, but it appears to be tipping the scale in favor of retailers when it comes to chargebacks to suppliers, according to one company that helps manage the process for suppliers to major retailers.

“You get a PO for goods, ship them, bill for them, get paid. There’s a lot of points in that process that can break down,” says Dallas Counts, COO of Vendormint, which works with suppliers nationwide to effectively recover lost revenue and prevent future deductions using AI-driven analysis and compliance strategies. “What’s pitched as efficiency on the retail side is quietly becoming a major margin leak for suppliers.” 

Often, a retailer will generate chargebacks — knocking down the price they actually pay for goods received — based on what they said they received, which can be the result of a genuine error, such as a miscount at the receiving dock.  

Depending on the vertical, these chargeback “deductions” are generally in the 3-8% range. Another issue is tracking discounts that suppliers offer retailers if they pay an invoice within a certain time; for example, a 2% discount if payment comes within 30 days. “Sometimes, the retailer may take the 2% and not pay within that time frame,” says Counts. AI helps keep track of exact payment terms and events, without the need for trawling through endless spreadsheets.

On another point, supplier and retailers have recognized that there’s always going to be damages and returns, and that can be covered by an allowance in a contract instead of nitpicking, Counts explains. But typically, when chargebacks swell beyond that agreed allowance, there’s an auditing process, usually covering the previous 12 months, and often resulting in a reset of the allowance amount in the next contract. AI makes the auditing process faster, easier and more accurate.

Some situations are more nuanced, says Counts. Say there’s an item in store, but the same thing is going to come out in a new, seasonal color. Sometimes, retailers don’t want to keep that old inventory, and they damage that to zero and throw it away, resulting in a chargeback. Counts says AI-driven monitoring can quickly show the supplier that everything was chugging along at 1.5%, but when that new item came in, the level spiked, and that spike was caused by the retailer. “Then you can renegotiate,” he says. 

Warehouses may be becoming more sophisticated and automated, offering a more accurate data trail, but loading dock operations tend to be more opaque, says Counts, so shortages and overages can end up being a matter of contention. “You have to play detective,” says Counts. “It’s an investigation and the document trails aren’t always easy to follow.” Vendormint employs AI that helps read the bill of lading, packing lists, proofs of delivery, and more. “Manually, that’s very labor intensive,” says Counts. “Both retailers and suppliers are using AI to determine what is the true story here. It used to be a very big burden on both suppliers and retailers. You had a choice of spending labor on a $20 claim, or just paying the claim. Now, you can investigate with a higher level of confidence. The idea is to be able to maximize your cash flow.”

Retailers , of course, have been getting better at this now, too, says Counts. 

But the main impact of the availability of AI-driven auditing, compliance and reporting is that it gives suppliers a chance to pull ahead in the increasingly involved and complex process of figuring out exactly who got what, when and where, and for how much. “Suppliers used to be able to use an accounting clerk to help you do that, but now because it’s becoming more involved and they have to provide a deeper level of documentation, it’s pretty hard for that accounting clerk. It’s raised the bar,” says Counts. “You can still get recovery from retailers, but you have to raise your game. It’s getting much more complicated, because retailers are evolving and some suppliers are too small to keep up.”