Revenue Leakage Reiterates The Need for Better Deductions
Management In The Consumer Goods Industry

What you’ll learn

Read how improving deductions management minimizes revenue leakage for the Consumer Goods Industry.

CFOs in 2021 are looking to shift gears from cash preservation to cash excellence. One of the most significant ways for them to do so is to minimize revenue leakage.

Revenue leakage happens when you as a business lose money that is owed to you. The money falls through the cracks due to one or more of the following reasons: 

Broken Processes|Limited Internal Collabration|Poor communication with customers

In Consumer Goods (CPG) companies, deductions is one of the primary causes of revenue leakage. Most CPG organizations struggle with a high volume of short payments with Ineffective deduction processes. The challenges worsen with the stringent compliance regulations that CPG companies have to follow while working with big-box retailers. 

Improving Deductions Management has been on the CPG A/R leaders’ agenda for a while now. But identifying the scope of the problem and the resultant revenue leakage that it is causing is step #1 for you to fast track your efforts to fixing the deductions problem. 

Here are some ways how poor deductions management allow for revenue leakage to happen:

1. Money Lost to Invalid Deductions: 

A lot of money is lost when companies are not able to identify invalid deductions. It may seem like a trivial issue at first since most deductions are of relatively low dollar value. However, when the deductions are summed up against all the invoices generated by CPG companies, the net dollar value lost in deductions annually is relatively high. 

2. Auto-Approved Write-Offs:

Due to the high volume of deductions they receive in a day, most consumer goods companies set an approved write-off limit for deductions. Any deduction below this limit is not researched by a deductions analyst and is automatically considered valid. While the limit in itself is pretty low ($50 or so), customers often start taking undue advantage of this limit set by the supplier. 

For example, they might take a deduction just short of $50 on every invoice, whether valid or not. These deductions are then written off automatically by the supplier. However, if suppliers were to research the deductions below their automated write-off value, they would identify customers taking such deductions as a pattern. Drilling down further, they could investigate some of these deductions and call customers out for raising invalid disputes, thus recovering the money they lost on every invoice. 

Given the high volume of invoices that CPG companies generate, the net sum would be considerable if only A/R departments got to get to a point where they could research all auto-approved write-offs. 

“A CPG company with $1Bn in revenue loses almost $3Mn annually to auto-approved write-offs.”

3. Compliance Deductions from Big-Box Retailers:

Many CPG companies also do business with big-box retailers such as Amazon, which has strict compliance regulations for their suppliers to follow. On violating these regulations, big-box retailers claim a compliance deduction, a problem that keeps getting worse with time. 

Today, most big-box retailers have sophisticated inbound audit solutions that allow them to track compliance violations from suppliers accurately. As a result, while these retailers could go after only 80-85% compliance deductions back in the 2000s, they can now spot almost 95% of all compliance issues. Additionally, it has also been observed that retailers give suppliers less time to resolve a compliance deduction, while the number of such deductions has been on the rise simultaneously. 

The short dispute window results in a lot of compliance deductions not being resolved. This causes CPG companies to lose a lot of money, much of which they would recover if only they could get to research and resolve all the compliance claims.

Due to the high volume of deductions in CPG companies, identifying invalid deductions is like finding a needle in a haystack. Deduction teams struggle to identify the invalid disputes and end up researching all the deductions. It is a known fact that deductions analysts spend time researching 100% disputes to identify only 10% of the invalid deductions in most cases. 

This means that teams cannot resolve the invalid deductions and lose the money they could otherwise have recovered. It is a need to reiterate better deductions management for the CPG companies.

Automation is the solution to overcome Revenue Leakage. Automation allows the deductions teams to fast-track their research, get real-time collections visibility to identify disputes, send customer correspondences, etc. 

The HighRadius Deductions Cloud provides AI-based deduction management software which predicts a dispute’s validity even before your analyst has spent any time researching it. It also offers collaborative E workflows for deductions tracking, approval, settlement, automated deduction correspondence to minimize results, automated write-off of low dollar value results, etc. As a result, the deductions teams have the bandwidth to research and resolve invalid deductions, thus preventing Revenue Leakage. 

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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.