A distributor pays for nine cartons and deducts the tenth. Your packing slip says ten left the dock. The carrier’s delivery record shows nine. Meanwhile a retailer has withheld 3% from another payment for a late delivery, and a service center has deducted the value of a part it returned under warranty. Each of those is a chargeback, and each one is decided by a different record held by a different team.
For a manufacturer, AR is where those claims land, but rarely where they can be resolved. This guide sorts chargebacks by type, lists the evidence that settles each one, and gives AR a way to hold the balance correctly while the owner decides.
Five claim types, five evidence sets
| Claim type | Customer’s position | Record that usually decides it | Owner |
|---|---|---|---|
| Warranty | The part failed within coverage | Serial or lot, ship date, warranty terms, inspection result | Quality or service |
| OTIF / late delivery | Delivery missed the agreed window or quantity | Agreed window, appointment record, the timestamp the agreement uses, receiving record | Logistics |
| Rebate or billback | The customer earned an allowance | Program terms, eligible sales, prior credits | Commercial finance or sales operations |
| Shortage | Fewer units arrived than were billed | Packing list, shipment record, carrier delivery record, customer count | Shipping |
| Damage | Units arrived unusable | Delivery exception, inspection evidence, return authorization | Customer service or quality |
The short payment tells you what the customer withheld. It does not establish that they were entitled to withhold it. Apply the cash the remittance supports, open a claim for the rest, and send it to the owner in the last column with the records in the third. The general workflow for doing that is in the customer deductions guide. This page covers what is specific to manufacturing.
Warranty chargebacks
Check the claim against the original sale and the terms in force when the part shipped, line by line:
- Confirm the part, serial or lot number, and shipment date. Check the coverage period and who is entitled to claim.
- Ask quality or service to confirm the defect and whether an inspection or return was required.
- Compare the remedy and the claimed charges with the terms. Review parts, labor, and freight separately; a warranty that covers the part may say nothing about the labor to install it.
- Look for an earlier replacement, credit, or duplicate claim on the same serial number.
Returns and RMAs in Epicor Kinetic
When the customer returns the part and deducts its value, link the return authorization to the original sale. Epicor describes using unique returned material authorization numbers to track returns and their disposition in Kinetic; where your installation uses that feature, the RMA is the link between service and AR. Epicor’s service management overview.
Find the returned quantity, the inspection decision, and any replacement already shipped. If service accepted one part and rejected another, the credit should follow the inspection, not the customer’s claim. Test a case where the RMA is closed but a deduction still shows: the reviewer should be able to tell whether the return was inspected, how it was resolved, and what remains in AR. Otherwise a replacement and a credit can both go out for the same failure.
OTIF and late-delivery chargebacks
On-time-in-full penalties turn on definitions in the customer’s agreement. A carrier’s delivery timestamp tells you when the truck arrived. It may not tell you how many units the customer accepted, or whether “on time” is measured against the appointment, the requested date, or the ship date.
| Claim | Records to compare |
|---|---|
| Late delivery | Agreed delivery window, appointment record, and the timestamp the agreement actually uses |
| Short delivery | Ordered quantity, shipment detail, customer receiving record |
| Split delivery | Whether the split was authorized, records for each shipment, the customer’s calculation |
| Repeated charge | Original claim reference, prior credit, invoice balance |
Customer programs usually have a dispute window. Track the response deadline on the claim record, and if the evidence supports part of the penalty, separate that amount from the part you contest.
Rebates and billbacks
A payment comes in short because the buyer took a promotional allowance. Before approving it, find the agreement and check which sales earned it. A claim can be valid for one product or period and wrong for another.
| Check | Evidence to keep |
|---|---|
| Eligibility | Customer, products, program dates, excluded sales |
| Calculation | Eligible quantity or value, rate, treatment of returns |
| Prior settlement | Credits, payments, or earlier claims for the same sales |
| Remaining balance | Amount accepted, amount disputed, follow-up owner |
Worked example (illustrative)
A distributor deducts $4,500, calculated as 3% of $150,000 in quarterly purchases. Commercial finance checks the program: one product family, worth $30,000 of those purchases, is excluded.
- Eligible sales: $150,000 − $30,000 = $120,000.
- Supported rebate: $120,000 × 3% = $3,600.
- Disputed: $4,500 − $3,600 = $900.
Credit $3,600 against the invoice the customer short-paid. Keep $900 open, and send the customer the excluded invoice lines and the program clause. Microsoft documents that its Dynamics 365 deduction workbench can match a deduction to one or more existing credits and show the remaining amount, which is the pattern to follow in any system: check the credit history first, then reconcile the result to the original invoice. Microsoft’s deduction workbench guide.
Shortage and damage claims
Two cartons are missing and a third is damaged, according to the customer. A signed delivery receipt identifies the shipment. It does not prove the customer accepted every unit in good condition, especially if the receipt was signed “subject to count.”
| Claim | Check first |
|---|---|
| Shortage | Order quantity, packing list, shipment record, customer count |
| Damage | Delivery exception, inspection evidence, affected quantity |
| Duplicate claim | Earlier claim, replacement, credit, payment history |
Compare quantities in the same unit. The carrier counts cartons; the invoice bills pieces. Illustrative: if each carton holds 24 pieces at $12.50, one missing carton is 24 × $12.50 = $300, and ten cartons are $3,000. A customer deducting $312.50 has priced the missing carton differently from your invoice, and that difference needs an answer too.
If you file a separate claim with the carrier, track it independently. Its outcome should not quietly offset the customer credit, or you lose sight of whether either party actually paid for the loss.
Split shipments and the invoice-to-cash chain
The order calls for 100 parts. The plant ships 60 on Friday and 40 the next week. The customer pays the first invoice but deducts freight. When AR opens the order, it should see which shipment was billed, what the receipt paid, and why the difference is open.
Confirm whether the contract calls for billing by shipment, on delivery, or on another schedule. NetSuite, for example, documents that Advanced Shipping can track sales orders separately from invoices, and that a separate preference allows invoicing the whole order before fulfillment is complete. Check which settings apply and whether they match the customer’s terms. Oracle’s guide to invoicing sales orders.
Keep the customer PO, sales order line, shipment reference, and invoice together. If the customer requires proof of delivery, attach the document for the correct shipment. When one customer buys from several plants, tie each disputed line to its shipment before attributing the balance to a site; keep unresolved allocations in a shared group so plant comparisons are not distorted.
Use the remittance data you already receive
If a customer sends X12 820 Payment Order/Remittance Advice, use the references it supplies to find the affected invoices and compare them with the bank receipt. When the 820 does not identify the invoice or the deduction reason clearly, ask for more detail before guessing. X12’s 820 specification. Customers may also reference a packing slip or their own PO where your ledger uses an invoice number; store both references so the next person finds the same delivery.
Benchmark against your own history
Take the last few comparable months and pick one repeated deduction type. Measure how long it took to assign an owner, get the evidence, and reach a decision. Then try attaching shipping or pricing records when the claim first arrives, and compare time to decision on the same kind of claim. Check the resulting invoice balances before concluding the change helped. Repeated freight deductions from one customer usually call for a shipment-level review and a fix to the invoice setup, not more reminders.
For how claims should appear on the collections call list, see the collections aging review. For the broader AP side of plant finance, see manufacturing AP automation.
Chargeback triage checklist
- Cash applied; withheld amount opened as a claim with type and reason code.
- Claim matched to the specific shipment, serial, or program, not just the invoice.
- Quantities compared in the same unit of measure.
- Prior credits, replacements, and earlier copies of the claim checked.
- Response deadline from the customer program recorded.
- Partial approvals split into credited and disputed amounts.
- Carrier claims tracked separately from customer credits.
- Repeated claim types reviewed monthly with shipping, quality, or sales.