3 Industry Experts Highlight Deductions Challenges That Impact Revenue & Working Capital of Consumer Goods Companies

What you’ll learn

  • 2021 latest trends and challenges in handling payment deductions
  • Best-in-class strategies to manage remote deductions management workforce
  • Tips to improve transparency, reporting, and root-cause analytics.

Consumer Goods Companies with $1Bn in revenue are estimated to lose almost $3Mn annually because of poor deductions management. In the new economy where CFOs are looking to achieve cash excellence, this revenue leakage challenge needs a solution. 

Deductions experts Jessica Butler, Kim Zablocky, and Kimberly (Kim) Erickson spoke with HighRadius about the biggest deduction challenges that exist today for suppliers working with the big-box retailers of the world. The extensive conversation has been summarized below for A/R leaders in the consumer goods industry. It identifies the scope of the deductions problem and covers the short-term and long-term solutions. Read below to find out.

The Deductions Problem Is Getting Worse

Where are Consumer Goods A/R Departments Losing Money Today?
Industry practitioners believe that their deductions volume is on the rise today.

With offices reopening, and the situation returns to normal, it is time for retailers to remove all the waivers that they have been allowing suppliers all through last year. Additionally, many supplier deductions teams admitted that they have still not been able to figure out a way to work remotely, as collaboration and access to all backup documents required for research persist as challenges in the Work From Home environment.

Major Deductions Challenges for Consumer Goods Companies

  • Compliance deductions continue to give supplier deduction teams a headache: Our experts also highlighted that retailers today have become a lot better at identifying compliance issues on the supplier’s end and charging the latter for the same. According to Kim Zablocky, most big-box retailers today have sophisticated inbound audit solutions that allow them to track compliance violations from the suppliers more accurately. 
    “As a result, while these retailers were able to go after only 80-85% compliance deductions back in the 2000s, they can now spot almost 95% of all compliance issues.”HighRadius has also found that many retailers, especially in the wake of COVID, give suppliers less time to resolve a compliance dispute. In contrast, the number of compliance deductions has significantly gone up at the same time. 
  • Post-Audit deductions need to be closely monitored and managed by suppliers: Retailers leverage post-audit deductions to recover money that they might have left on the table by failing to claim funds due to them based on a trade agreement, as well as freight charges, shortages, or other issues. Many big-box retailers have both internal teams as well as 3rd party audit firms looking for post-audit opportunities. Since they are typically taken more than a year after the shipment, post audits can be challenging to research and validate because suppliers may not quickly find the information needed to support or dispute the claim. Therefore, suppliers must have a strategy to resolve post-audits effectively.

Easy and Quick Steps To Optimize The Deductions Process Today

  • Root cause analysis can help suppliers stay on top of their deductions problem: Root cause analysis can help suppliers identify underlying issues causing non-trade deductions. This way, they could take corrective actions on a timely basis can reduce many preventable deductions. By doing root cause analysis regularly and thoroughly, you can see small incremental improvements in how you and your team approach Deductions Management and solve the commonly recurring challenges for the long term. 
  • There is nothing better than “talking” when it comes to deductions: The communication gap between the suppliers and the retailers is often a primary cause of disputes. It leads to delayed claim resolution as well. To make this point, Kim Zablocky shares a typical example, where a retailer sends a purchase order change after the supplier has already started working with the retailer’s original purchase order. RVCF found that this is not uncommon. Merchants change the purchase order almost 4.4 times after the supplier has already started working on it.Most suppliers do not have an accurate way of automating this change, neither do they have a fixed process on how they would approach the change. There are also no limitations to when the purchase order can be changed in many cases, leading to retailers changing it sometimes after the supplier has already shared the advanced shipment notice. A change at this time requires suppliers to open the packages, change the order and repack them leading to additional time and resource involvement. There are a lot of things that can go wrong in the above process. The supplier can miss a PO change, ship the wrong quantities of the product, and be charged back for both a shortage or an overage. To resolve issues like this, both parties must collaborate well and have good relationships with each other. Even internal communication is of utmost significance for better deductions management. Collaborating with sales, logistics and shipping teams, carriers, etc., is required to be done almost daily to resolve outstanding disputes by the supplier.
  • Everyone in your organization should take accountability for deductions: Many organizations have dedicated resources that work on customer deductions. In contrast, others have people from different A/R departments (credit, collections, cash application) focusing on deductions research and resolution, in addition to their primary role. More often than not, deductions are considered to be just their problem. Deduction leaders, however, need to ensure that people understand that deductions are not the problem of a single department but everyone in the organization. They need to hold other departments (like sales) accountable by letting them know how poor deductions management leads to money falling through the cracks, which of course, no one wants.Kim Erickson, an expert in the field of trade deductions, says that A/R leaders must hold sales responsible for proper documentation of deals, timely responses on an open deductions item, and seamless collaboration with the receivables team. 
  • Peer-to-Peer communication for suppliers is a good idea: It is helpful for suppliers to interact with other suppliers who work with the same retailers. These forums can brainstorm collectively on the best strategies for managing deductions, share tips, best practices, and stories around what works for a particular big-box retailer vs. what does not, and so much more.

In The Long-Term, Automation is the Solution

Deductions management is a known priority today, but many companies still have a long way to go. A few years back, it was possible that companies were not paying attention to their deductions, but that is not true today. In recent years, most executives have realized the real impact that poor deductions management can have on their bottom line and appointed people on the team to look after the process.
Deductions Challenges Impacting Consumer Goods Company
Industry practitioners say that they are struggling with one or the other challenge in managing disputes effectively, despite having some improvement strategies in place. 

In the long-term, the solution to these supplier challenges has to be automation. Kimberly, Jessica, and Kim have all agreed that digital transformation is instrumental in ensuring the deductions department’s success in the new economy. Watch this conversation on your own to capture their detailed insights and recommendations.

There’s no time like the present

Get a Demo of Integrated Receivables Platform for Your Business

Request a Demo

Request Demo Character Man

HighRadius Integrated Receivables Software Platform is the world’s only end-to-end accounts receivable software platform to lower DSO and bad-debt, automate cash posting, speed-up collections, and dispute resolution, and improve team productivity. It leverages RivanaTM Artificial Intelligence for Accounts Receivable to convert receivables faster and more effectively by using machine learning for accurate decision making across both credit and receivable processes and also enables suppliers to digitally connect with buyers via the radiusOneTM network, closing the loop from the supplier accounts receivable process to the buyer accounts payable process. Integrated Receivables have been divided into 6 distinct applications: Credit Software, EIPP Software, Cash Application Software, Deductions Software, Collections Software, and ERP Payment Gateway – covering the entire gamut of credit-to-cash.