Historically, suppliers with $1Bn in revenue are estimated to lose almost $3Mn annually because of poor deductions management. In the post COVID economy where CFOs are looking to achieve cash excellence, this revenue leakage challenge needs a solution.
HighRadius hosted a conversation with leading deductions experts Jessica Butler, Kim Zablocky, and Kimberly (Kim) Erickson about the common deduction trends that exist today and must-know facts for suppliers working with the big-box retailers of the world. We have curated the below eleven pointers from their conversation, which will give you an overview of the deductions problem, potential solutions, and next steps for you as a leader.
68% of participants in the conversation mentioned above said their deductions volume was currently on the rise. With offices reopening, and the situation returning 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.
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 after 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.
To deep-dive into retail compliance and perfect ordering, check out this guide from RVCF, titled All about Retail Compliance (And More)
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.
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.
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: the merchant’s purchase orders are changed 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 point 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. To facilitate such collaboration between the buyer and supplier, RVCF organizes events where both the retailer and the supplier can interact 1:1 and avoid such situations from happening.
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.
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 it is imperative that A/R leaders hold sales responsible for proper documentation of deals, timely responses on an open deductions item, and seamless collaboration with the receivables team
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. Supplier forums from RVCF are an excellent example of a peer-to-peer communication platform.
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Talk to our expertsHighRadius 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.