Episode 13: Going from Fragmented Processes to Well-Oiled Deductions Management

Madhurima Gupta:
Hi everyone. I’m Madhurima Gupta, host of the CFO circle podcast-powered by RadiusOne A/R suite. Today I am at Radiance organized by HighRadius happening at Nashville this year. It’s the biggest conference of its kind for the office of the CFO. In this episode, which I’m bringing for you from radiance 2022, we are gonna talk about deductions and its criticality, as it impacts an organization’s revenue. Recent research shows that customer deductions incorporate 5% to 20% of the company’s gross revenues. If 10% of these AR deductions are unauthorized at a company generating $1Billion ARR, then it will end up losing millions of dollars of profit. Even for Mid-market businesses, deductions and disputes with top fortune companies can lead to revenue leakage. Handling these deductions is not an easy task and it can be a very time-consuming and labor-intensive process. This makes it necessary for CFO offices today to have a structured environment for systematic and hassle-free deductions management. But how can CFOs achieve that? Today, we are gonna talk about the exact same thing and reveal the secrets of a well oiled deductions management process with our expert speaker Jessica Butler. Welcome to the show, Jessica. How are you doing?
Jessica Butler:
Thank you. Well, thank you.
Madhurima Gupta:
And how are you liking Radiance?
Jessica Butler:
Oh, it’s great. It’s a lot of fun. It’s very sunny right here. It’s very nice.
Madhurima Gupta:
And um, you know, we just had Sashi’s keynote session. What are your views on autonomous finance?
Jessica Butler:
I like it. I think it’s really a great idea. And I do agree with Sashi that it is sort of, it is the future to take information that we have, information that’s all around us, and use it to predict what’s going to happen.
Madhurima Gupta:
Perfect. Cool. So now I’m gonna move to Jessica’s, introduction. So, Jessica has over 30 years of consulting experience and has dedicated most of the past two decades to focus exclusively on deductions and chargeback management. Jessica founded Attain Consulting group in 2004, where she focuses on helping companies take control of deductions. Additionally, she works with individual companies in all areas of deduction management improvement, including cloud-based deduction solutions. Jessica is known throughout the industry as an expert and a thought leader in deductions management and negotiation. Which is why I think there’s nobody better than Jessica to answer the questions that I have for her today. So, Jessica, my first question for you is on the drawbacks of managing deductions in the CFO’s office today.
Jessica Butler:
Okay. So depending on the level of automation that you have managing deductions, if you’re doing it manually, there are a lot of non-value-added activities starting from having to go and get backup information, claims from portals, or searching through emails. It can be very, very challenging and not a lot of value. So by the time the companies get the information to be able to validate or see whether the deduction is even accurate, more and more have piled up. So people spend a lot of their time manually dealing with activities that are not value-added.
Madhurima Gupta:
Absolutely. And, um, you know, how do you think technology and automation can solve the challenges that exist in deductions management today at CFO’s Office?
Jessica Butler:
Well, so one of the things, as I mentioned, a challenge is getting the documentation. So technology out there now has bots that can go and automatically pull the information, pull the documentation to save the person, the time of doing that. Also, there’s a lot of cross-functional work that has to get done with managing different deductions. And often people are doing it through emails or running down the hall or calling people or having zoom meetings and using technology. It makes it much easier to move information back and forth between people and not lose track of it and not have to manage big emails. So that can really help as well, as well as reporting. It’s often very difficult to get good information on, um, how people are doing and managing deductions. If they’re using Excel spreadsheets, let’s say to document the status of the work that they’re doing in order for management to understand where they are, they’ve gotta go run around and talk to people and get information. Yet using technology allows you to have a lot of different levels of understanding of the data. Not only maybe the status of where someone is, but also root cause codes, why are certain deductions happening, which would then allow companies to take corrective action? So there are so much insights that can be gained from using, um, the technology to help you manage deductions.
Madhurima Gupta:
Absolutely. Can’t agree more. If I talk about mid-market in specific, what, according to you is one of the most common types of deductions that mid-market businesses, uh, you know, face or have to manage?
Jessica Butler:
So a lot of different types of deductions, the most common or the largest is typically trade promotions, having to do with agreements that you make for customers, whether it’s an allowance or a discount. And then you get a deduction in and try to match that deduction up with the agreement. Did I give them that promotion? Did I give them that rebate? So trying to match that up can be time-consuming, but using technologies such as HighRadius technology, it really allows you to have information on the promotions as well as information, um, on the backup of the deductions companies are taking and allow you to automatically match them. Or shortages. Shortages are a very big issue for customers. And when you’re looking at a shortage, you not only have to get the claim from the customer to understand it, but you often have to get a proof of delivery from a transportation carrier to see if the customer did indeed mark it, that it was short a lot of time to go and pull those documents manually.
I’ve seen clients spend 50% of an analyst’s time just going to pull that documentation. Now, if you have automated technology that has the capability of these bots, that information can automatically be pulled in. So when you go to look at a deduction in the tool, it’s a shortage deduction, the claim backup the POD and maybe the invoice are already there waiting on that deduction. So now the analyst is able to start their research right away and not spend a lot of time going to pull the backup before they can even start doing their analysis.
Madhurima Gupta:
Absolutely. You know, I was actually talking to Lawrence Chester, he’s one of our other, um, you know, speakers at CFO Circle and he’s a Fractional CFO. So from his time as a CFO, which was probably like 15 years ago, um, at one of his companies, uh, the biggest problem that he faced was that these deductions, because they could not handle them timely, uh, they would, uh, you know, had to let go of the entire order value. Right. And, um, and do you think that this problem still exists in companies where they have to let go of the entire, uh, you know, entire order value?
Jessica Butler:
Oh, definitely. There are definitely a lot of customers that have, um, time limits. After 30 days, you can no longer dispute after whatever the time period. So what happens if you’re not able to get to it at that point, then you’re not able to do anything. And one of the things that also, you talked about the autonomous finance and looking at AI. One of the things in the HighRadius tool, for example, is the ability to have AI information. So to be able to look at history, look at what’s happened with your deductions in the past, which have been invalid, and use that to determine and predict, um, with a confidence level, which do we think are invalid, which do you think are valid. And then it allows, it can allow analysts to focus right away on those with a high probability of being invalid, which really can increase recovery. So again, a lot of, um, it’s a really good way to look at and get the value out of organizations.
Madhurima Gupta:
Absolutely. And, you know, do you think that mid-market CFO offices can start to cut revenue loss and reduce DSO with such a solution for example HighRadius and why?
Jessica Butler:
I definitely do. And it’s really very interesting when I talk to mid-market companies, often they focus on what’s my open deduction balance, and they’re very focused on getting that deduction balance down. And really, I think that’s, it’s only part of it. So yes, you want to be able to resolve those deductions quickly, but what you really wanna do is prevent the deductions. So you want to understand why you’re getting them and look at taking corrective actions within the organization to prevent them from coming in again. So by using a solution that’s very automated, you can have better visibility to what’s coming in, also some of the root causes, and then give them to other people in the organization and have the cross-functional teamwork to figure out the corrective action. So it’s a win-win for everybody.
Madhurima Gupta:
Great. Thank you for sharing your opinions and insights today at the CFO Circle and for our listeners out there, stay tuned. We’ll be back with more.