Driving Efficiency when Automating Deductions

What you’ll learn

  • Understand the largest factor affecting deduction management.
  • Learn how recent technologies help A/R in deduction management.
  • Learn how to acquire higher recovery rates.


The number one roadblock in order-to-cash (OTC) efficiency is paper documents. The problem is a combination of the time to process paper and the sheer number of documents that flow through the OTC process. Potential errors or inefficiencies increase exponentially as documents are either handled or generated at every junction in the workflow. Converting these paper documents to electronic files is the key to achieving high efficiency in your OTC performance.

Merely converting documents to electronic images for archive purposes, however, is not enough. A document image still requires manual handling at each touch-point of the OTC process. What must happen is for these documents to be converted to an electronic data format – not just an image – so that the information within the documents is captured and exchanged electronically in order to achieve straight-through processing (STP).


Deduction Management

Access to back-up documentation is the biggest factor affecting effective deduction management. With paper-based documents, access is time-consuming, cumbersome and inefficient. Paper makes researching deduction issues and sharing those findings with other participants more difficult. Paper documents are also hard to track, so monitoring the status of individual deduction claims is nearly impossible due to a lack of visibility.

Deduction management, if not handled efficiently, will suck up time from other higher return activities, raising the true cost of deduction management. Another factor contributing to inefficiency stems from upwards of 90% of deductions being cleared by a credit memo or other adjustment. Ignoring deduction resolution, however, will only ensure that deductions rapidly accumulate as open AR items in your workflow, negatively impacting other credit and collection activities such as order approval and remittance processing.

All of these issues combine to make an environment that is primed for an automated solution. Remember, getting rid of paper is not enough. It really is about the electronic capture of information that can drive effectively and efficiently drive automated processing. A holistic solution interface deduction management with auto-cash protocols provides matching to trade promotions management (TPM) solutions and incorporates proof of delivery (POD) analysis. This confluence of different-but-related processes enables an automated solution where the majority of deductions can be automatically identified by type and then routed according to pre-defined workflows. The automated matching of pre-existing promotions facilitates automatic settlement and full-cycle promotion analysis. Additionally, readily available POD information, now that most carriers post POD info online, can be used to identify and resolve issues related to shipping and quantity.

Emerging technologies are helping AR move beyond capturing and populating data to actually eliminating a very large proportion of the work associated with deduction management. Web aggregation technology automatically trolls websites and customer portals to identify and capture claim forms, PODs, and other documentation. This technology will then collate the information and attach to the correct deduction case.

Automated solutions also make deduction management metrics easier to obtain and distribute, and in so doing deliver greater control than can be achieved with a manual, paper-based environment. Root cause identification automatically measures the types of deductions created and tracks their recurrence. When deductions are quantified by type and associated costs, it is then possible to justify the efforts needed to eliminate such root causes. This, in turn, reduces the cost burden of deductions.

In the same way, returns variance analysis can compare deductions taken by customers to agreements with sales. It can also look at records from logistics or carriers to find further inaccuracies. Automated analysis of this type highlights issues and helps create higher recovery rates, thereby facilitating better deduction management.

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