Deductions management process

10 April, 2023
8 mins
Brett Johnson, AVP, Global Enablement

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8 Mins

Table of Content

Key Takeaways
What is the deductions management
What is the deductions management process?
Manual/Traditional process:
Using Automation and Artificial Intelligence:

Key Takeaways

  • Dive deep into the nitty-gritty of deductions management in accounts receivable
  • Understand how efficient deductions management could help your company improve cash flow
  • Learn the benefits of implementing automation and artificial intelligence in the deductions management process

What is the deductions management

When a company receive less payment from its customers than what was expected for unknown reasons. The amount that is not paid is considered a deduction. This deduction might happen due to a variety of reasons such as:

  • Damaged goods
  • Billing errors
  • Shortage in shipment

Companies need to assess their deductions management process to determine the reason and validity of the deduction taken. But, before we dive deep into the details, let us first understand what a deductions management process is.

What is the deductions management process?

A deductions management process is the process followed by the deductions teams to resolve deductions. This might vary from company to company based on the size of the company, preferences, and the software capabilities of the organization. An efficient deduction management process could help your company increase the recovery rate and decrease the time spent in resolving the disputes. But, is your manual traditional deductions management process as efficient as you think? or do you need to scale it up with the help of technology and artificial intelligence? Let’s find out!

Manual/Traditional process:

Traditional deductions management process

There are a lot of challenges in the manual more-traditional deductions management process especially as companies grow. Let’s understand the steps in detail.

Step 1: Receiving dispute tickets

An analyst receives dispute tickets from either the client or a deduction claim from the accounts department.

Step 2: Prioritizing claims

The analyst then prioritizes the claims in the order of importance. This is usually done based on the deduction value.

Step 3: Gathering data

After the deduction or the short payment gets identified, the analyst works on gathering the back-up information and finds the source to the invoice. Finding the source helps the analyst identify the right stakeholders for the invoice. After identifying stakeholders, the analyst manually researches and collates all the documents related to the invoice – Proof of Delivery (PoD), Bill of Lading (BoL), order invoice, sales invoice, tax receipt, and other documents related to the order.

Step 4: Requesting for data

In case some information is missing/ incorrect, the deductions analyst manually reaches out to the stakeholders and internal teams to gather the required data.

Step 5: Resolving deductions

After collating the documents, the analyst matches different records with the claims document and works on finding the validity of the deduction.

Step 6: Getting approval

If the claim matches certain criteria, the deductions analyst might have to follow up with their superiors to get approval. This takes another round of back and forth and further delays the resolution.

Step 7: Following up with customer

If the deduction claim is invalid, the analyst sends a manual correspondence to the client informing about the rejection of the claim request. If the deduction claim is valid, the analyst engages with the client and issues either a credit memo or a debit memo for future use by the client.

Step 8: Syncing changes with ERP and TPM systems

After the claim has been declared valid, the analyst informs the accounts department regarding the validity of the claim request and asks them to update the invoice into the ERP and issue a credit or debit memo as per need. After this, the account status for the client gets closed.

Step 9: Reports

Reports are prepared manually, usually in excel, which helps the managers and executives understand the performance of the deductions functions. Creating these reports becomes very time-consuming due to the unavailability of real-time data. Now that we have a good idea about the challenges in the traditional deduction management process, let’s find out how Artificial Intelligence could help companies automate these processes and help the deduction management team to focus on early detection and resolution of disputes.

Using Automation and Artificial Intelligence:

HighRadius Deduction management software helps reduce the time and effort so that deductions specialists can focus on high-level tasks. Let’s understand the steps in detail.

Deductions management process

Step 1: Data collection

The solution pulls the following data automatically: 1. A feed of deductions from your ERP 2. Promotions and commitment data from TPM 3. Supporting documents(Claims and POD) for all the deductions from EDIs, emails, paper-based copies, or customer portals.

Step 2: Data linking

The deductions/pre-deductions information, along with the promotions and commitment information, is automatically linked with relevant documents via predefined rules.

Step 3: Validating Deductions

The AI software starts auto-matching, where it figures out whether or not there is any validity in the deductions taken by your customers.

Step 4: Creating a prioritized worklist

The solution creates a worklist for each of the deductions specialists for the high-level tasks that they need to perform. The worklist contains all the deductions auto-assigned to the deductions specialist and the recommended steps to be taken, as suggested by the system neatly arranged in a prioritized manner.

Step 5: Additional documents

Other employees of the organization could easily access any additional documents/information, from within the software itself, which once sent, would automatically get linked to the deduction. This saves a lot of time, which is spent back and forth.

Step 6: Resolving deductions

The deductions specialist now validates what the system has auto-matched and reviews the suggestions made. In case of a mismatch of the information provided by the customers, the specialist reaches out to the customers. Based on this research, the deductions could either be approved or denied.

    For approval:

    The deductions specialist simply marks this as approved, and it gets sent through the multilevel approval process of the company. The process might also vary depending on the deduction amount.

    For denial:

    If a deduction is denied, the correspondence is sent to the customer via an EDI or an email by the solution automatically or even uploaded to the client’s web portals.

Step 7: Syncing changes with ERP and TPM systems

The different resolutions are sent to the ERP and TPM, where all these changes are made automatically.

Step 8: Reports

The solution also creates multiple reports for mid and senior management. This helps them review the performance of the deductions activities at different levels based on the teams, individuals, regions, and customers. In today’s technology-driven world, companies need to look beyond the traditional approaches and choose the right Deduction Management process to uncover additional business values. If you are interested in understanding how our solution could help your company save time and money? 

Deductions management process


What is deduction in accounts receivable?

Deductions are a part of accounts receivable management and occur after a customer disputes, or doesn’t pay, a certain amount of their total owed.

What does a deduction analyst do?

Deduction analyst identifies opportunities to improve processes that will minimize non-promotional deductions, clear deductions in a timelier manner and provide more extensive or reliable information to Marketing for promotional deductions taken.

What are customer deductions?

Customer Deductions means charges against sales customarily taken by Seller in the ordinary course of business, such as customer returns, discounts, mxxx downs, promotional allowances and other chargebacks.

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HighRadius Deductions Software acts as a powerhouse for proactive deduction management to prevent bottom-line erosion. It provides automation, process standardization, and a platform for cross-departmental and customer collaboration. It supports deduction management by providing some key features like back-up document capture which captures deduction data from customers and supplies the information required for resolution; auto-capture proofs of delivery (PODs), bills of lading (BOLs) from carrier portals & emails; structured deduction resolution, collaboration & approval workflows to streamline the communication and approval process; along with automatic deduction correspondence, and automatic data push to customer portals. The result is a proactive deduction management operation that recovers revenue normally lost to invalid deductions.