Deduction Management: Workflow, Automation and Reporting



Cindy Scott

Senior Manager A/R & Billing, Blackhawk Network


[0:00] Cindy Scott:

Hello everyone, I’m going to first tell you that I’m not gonna move around a lot because this is high, and I’ll probably fall off and it kind of creeks and this makes me really nervous. So, I’m just going to pretty much stay still. Sorry. This is really high, it’s kind of bizarre, so bear with me. (Audience Laughter) If I screech once in a while you’ll know why. So, let’s just dive in. I wanted to talk a little bit about the deductions management solution and how we implemented that at Blackhawk and why we implemented it. Is the slide working?

[0:38] Audience:

I think you have to go down.

[0:40] Cindy Scott:

There we go. Okay! Down it’s a scary word right now. (Audience Laughter). So I’ll give you a little background as I said about Blackhawk. What does the deductions landscape look like? What we decided is that we need the building blocks for a solution. When do we start looking for one? What that solution in action would look like? Some of the results. And some of the key benefits and best practices that we identified along the way.

[1:09] Cindy Scott:

First, a little bit about Blackhawk. We are not helicopters. Everyone’s first thought. We are actually the engine, the settlement engine behind gift cards. So when you go to your local grocer, and buy a Macy’s gift card or a restaurant gift card, we are the settlement solution between the distribution partner, that grocer, and the card partner Macy’s and the restaurant, and then we take a little piece of the pie for handling that business for them. That is our core business. We also have the incentive side of our world which is really growing rapidly and that includes things like employee rewards, employers will buy gift cards and bolt to give out as employee rewards. We have energy companies that give out rebates for putting in solar; those gift cards are driven by our engine as well, and other different rewards and incentives, a really cool one that we just kicked off. You know when getting those little emails. You know you’re eligible for a class-action lawsuit and you get your $5 check or whatever.

[2:18] Cindy Scott:

We’re partnering with some insurance companies that will go online and you can select either an ACH deposit or a gift card for your award on that class action lawsuit. So there are lots of things involving gift cards but they didn’t realize until I started at Blackhawk. There’s a really complex process around the marketing, the distribution, printing the cards, and clearly activating the cards and getting that settlement process done and deductions, just kind of as a lead-in. I know deductions are called different things at different companies. So deductions at Blackhawk, they’re not short paying, and they’re not claims, they are the true amount that Blackhawk owes our partners for things like their participation in a marketing program.

[3:13] Cindy Scott:

5% off the visa programs that all get accumulated via the data from the card partners. And then we have to pay the distribution partners for their participation in that program. And so we have probably about 15 or 20, large distribution partners that contractually can deduct their money that we owe them from their payments to us, on the payment side for paying us for the gift cards that they sold at their store. So when I first got to Blackhawk, the landscape was earthquakes, floods, hurricanes. You name it, it was a disaster zone, we had, as you can see by the slide, 2,000 deductions that were greater than two years old. We had 4,000 total deduction line items.

[4:10] Cindy Scott:

So a deduction can come in from let’s say Kroger, and it’s a million-dollar deduction. It’s across all of their stores, so we’re going to get 1,500 invoices associated with that deduction, each one of those can then be cleared individually. Depending on the data that we had got from the card partner to clear those. So my team doesn’t actually have to do the reconciling of the deductions, but we have to figure out which department needs to get those deductions so that they can then do the reconciliation and clear it to the appropriate expense or liability account. So we have a lot of invoices per production, and we had two and a half FTE on the deductions team. That doesn’t count time-management, of which a great deal was spent just trying to figure out where we were. So when I first got there it was clear, we needed a solution. And we needed to understand why we needed to lose, how did we get here in the first place? And there was, it was really obvious to me. First of all, I didn’t know what deduction was when I started at Blackhawk. We didn’t have those in any of my previous industries. We had short pays and things like that but with this deduction, it was very new to me. So just understanding that was, the first task and they said, “Oh, by the way, we just bought this software that’s going to cure the world. You have to figure it out.” So, I had to come up with help, come up with the requirements for solving our deduction problems without really understanding what deductions were but it was clear that we have a problem. It was done poorly there, there was no process. There was an incredible lack of visibility, depending on which department we were working which declared the detections. They each have their own spreadsheet or other methods. I’ve seen sticky notes and napkins for tracking their deductions.

[6:02] Cindy Scott:

It was a high transaction volume for a while. Blackhawk was in the handset business. So you know like the burner phones? I said we’re helping the drug cartel I don’t know. You know the retailers burned through the burner phones pretty quick like, a new version would come out so they’d return every model of the old version. And we were getting deductions for those returns, and there was very little tracking or understanding. Blackhawk wasn’t in the inventory business, to begin with, so that created a whole another level of complexity in trying to just figure out how to clear these items, and who was responsible. There were zero workflows. The deduction came in with a cash payment. And it sat on a deduction account. And it lingered, and once in a while somebody knew what to do with it, we could do a manual journal entry to clear it.

[7:01] Cindy Scott:

But most of the time we weren’t even sure what department was applicable to, it wasn’t always clear on the invoice. They used really interesting words to describe the items on their invoice, you know, two cents off. Fuel card and okay could be marketing or it could be if you renewed your minutes on your burner phone you got two cents off your full card so that’s Telecom. So, there was very little to go on and clear the deductions. And we didn’t have any kind of real-time visibility into the status of a deduction. So, we might have a question on from marketing.-hey, did we get hit for you, know this black Friday program, Krogers?

[7:48] Cindy Scott:

I don’t know what your log shows because our log has nothing about Black Friday on it. Because we didn’t have any, we wouldn’t know ahead of time what the programs were to even look for what was going to come into the deduction queue. So it is a mess. It was part of our business clearly that needed significant attention. It was a $4 million problem at that point and the majority of that was over 90 days old and probably most of it was in that two-year category. The good news was that most of the expense has been accrued for. So it was more of a balance sheet problem and an actual cash flow problem, but it made the CFO very nervous because we had such a balance sheet issue. So we wanted to see based on a solution that was purchased. I’ll be honest with you, I have no idea who made the decision to purchase the HighRadius Solution.

[8:40] Cindy Scott:

Just before I came on board I believe it was our chief accounting officer who had been to a seminar or conference and saw the software and said, “We’ll take that”, “We will take anything”. And then they said, “Okay now figure out how to make that work.” So, we will let you know what’s our objective, what do we need to make work. and we came up with the three pillars. Clearly we needed automation. We needed a workflow, we needed to know where the deductions stood at any point in time or the clearing of the deduction. There was really no workflow around approval or authorization thresholds or anything like that, and very clearly we needed reporting. I was asked for the aging of deductions. And I had this spreadsheet that some had dates. Some didn’t. I wasn’t even sure if it was the whole picture, nothing tied to anything in a GL. So, our sub-ledger was just this, this kind of an interesting hodgepodge of information that people have gathered, and the other side of it was the people that were working deductions. We get so frustrated they quit. So you had no legacy information or knowledge coming through.

[9:53] Cindy Scott:

So let’s talk about automation. One of the things that I mentioned on the Kroger example where we will get like 1500 line items or 1500 invoices to accompany a deduction, the deduction analysts would go to their portal and download every single one of those invoices, they would scan it. They would save it to share drive because that helps the marketing department have visibility to the invoice. Well, that alone and this happened, you know, anytime there’s kind of a major gift card holiday we call it Dads and Grads. Clearly the holidays. Mother’s Day. Valentine’s Day is actually a big gift card, we would get these huge invoices and so it was fairly often that we would have this exercise of spending days upon days scanning printing and scanning invoices and oh, by the way, the marketing team would then print the invoices off the shared drive and pass it around to their folks to check on the car partner data manually with highlighters and fun things.

[10:59] Cindy Scott:

And I, you know, I want to say well that’s your problem but hey if we can help you with this tool let’s try to do that as well. The deduction analysts needed to know what to work on when, when they came into the office. There was a lot of shuffling of paper. There was a lot of “where did I leave off?”, “Which emails are answered which are not?” there wasn’t even a real clear line of communication on questions with deductions at all just kind of went into the central A/R inbox email box and might or might not get routed to the deductions analyst. So we needed a way to route communication as well. And the worklist for the deduction analyst. And I think most importantly, before that silly requirement of being able to balance to the general ledger, as well as being able to report on the status of deductions and hold people accountable and know where we stood we needed reporting. We needed a single source of information, not. I think we probably had six sources of truth, none of which were true. So we’re going to continue on sorry, continue on automation. So this is an example of what what the aggregating Maclean’s documents do what aggregating the invoices in our case, that HighRadius provides so it will go out to Kroger’s website and it’s in several of our other partners, and pull in those invoices no more printing, saving to share drive our scanning and then saving descript share drive it automatically captures the invoice, the invoice image is attached to the deduction in the HighRadius software and a really cool thing that we were able to use HighRadius for was in working with our customers as we’re building the requirements for the tool, low and behold, Kroger’s invoice format tells you what the deduction is for. So like, O9G is a handset return and an O6H starting digit is for marketing, and so we get to HighRadius- Hey invoices that come in with these with inflated numbers. Can we automatically categorize those into marketing telecom handsets, and as opposed to you know previously everything kind of ended up in the ubiquitous other categories for research later. So that took a ton of time. The pulling of the invoices automatically and categorizing them was an instant win for us, the marketing team primarily, they get the bulk of the deductions now we’re out of the handset business.

[13:46] Cindy Scott:

And the returns were a nightmare because we like it, we weren’t an inventory company and it just wasn’t working. So going forward marketing is definitely our biggest partner on the deduction side of the equation. And they’re able to use the software to group items, so they’ll have the project number or appeal number that they can do an advanced search on and find all the deductions that have come in and against that project, and do their validation that way. On-screen instead of on paper with highlighters. They can approve them right then and there, they never have to look at it again. They don’t have to wait for all of them to come in and can approve them as they come in. It’s been a real time saver of theirs as well. And we will talk about this and a little bit but because we can give them reporting on where any deduction stands, say they’ve you know approved 1400 of the 1500 line items they know which hundred are missing now and they know who to reach out to add in the various regions of the retailers so they can go to the southwest regional Kroger, hey, we haven’t gotten your invoices for Black Friday, are those coming. Some others, there are just so many examples of how the deduction population can be grouped and categorized. So whoever the end-user is, we are marketing. We’ve even had some of our corporate accounting folks look to them because they want to see this kind of volume of the promos that are going through on Black Friday or dads and grads and that kind of thing. They can actually do an advanced or take a little training, but once they learn that they can go in and you know hunt and peck and do advanced searches and find what they’re looking for. They find it very user-friendly and there are fewer phone calls and emails coming to my team as well.

[15:34] Cindy Scott:

To some more examples of how items are grouped. The other thing that we can do with these is on my team. We can create packets, for approval. So not every single line item has to be approved individually, and this is true for the other department teams as well. They can group like items into a packet and that packet can be approved, as a whole, and any notes that you make on that packet, or any attachments will go with every single deduction line item in that packet. So if you get research or an audit request or something like that on a single line item it’s going to have all the information without having to find a parent or one like it or this one got approved last week so it must be with that one and it’s made it a lot simpler for just times savings in research, and in pulling past history and things like that for reporting. I already talked about this where we can match against the promotion ID, the marketing team, they were, they were a little scared of the technology at first they loved their spreadsheet was always wrong. There were a lot of fat fingers going on on his spreadsheet that drove us crazy. So, it took some.

[16:54] Cindy Scott:

A lot of collaboration, a lot of interaction, some chocolate chip cookies to get them to really pay attention to what the tool could do for them once they bought it because it’s an accounting tool it’s not going to do us any good. It’s an accounting tool. Once they really, we could show them all the variety you know what is it that you do when you have the deductions and then we would show them okay here’s what HighRadius can do for you when you’re trying to resolve these or when you’re trying to clear these deductions or get totals or whatever and you see the little light bulbs going off. And we even got the person who was, you know, adamant this was never going to work for them. I’ll have everyone else use it but I’m not going to use it, the supervisor. She finally came on board as well and now she’s like the biggest cheerleader. So, lots of wins in the process. So the next pillar was on the workflow. Again, we wanted to be able to once something is categorized as marketing or as telecom or handsets. We wanted to be the detection to route to that department so that they could do their work, approving it, clearing it against their liability, telling the software where to come which liabilities declare it against, and then getting it back to us in a timely manner. So there’s, it’s basically called the processor level in HighRadius. And we can assign the processors or we can create rules that all marketing goes to this processor. I think we can probably even do more that we haven’t really explored yet as to my partner so all the Kroger marketing goes to this processor and all of the Staples marketing goes to this processor I think we’re continuing to fine-tune it even two years later.

[18:42] Cindy Scott:

Once we’ve identified the processor we’ve routed it and flagged it for where it needs to route to we can attach correspondence, we need to send an email. These invoices came in, it’s clearly not all of them, or these came in with sometimes there’ll be notes on the remittance that don’t come in with the actual invoice copy that is downloaded from the site, we can attach that information or just note it in correspondence. We can have an auto correspondence. Hey, Milton, you have 14 new deductions to work. Most of us have turned off the auto-notification because we’re in an all-day every day. So we don’t need to be notified to get in there and approve things, but it has helped with other folks that don’t get deductions too often, and they’ll get that email and they know to go into HighRadius and work there too.

[19:33] Cindy Scott:

We can also send correspondence to customers from the tool as long as we have them set up in the master, with an email address or we even have deduction dispute addresses for some of our partners, we can do an auto correspondence. We don’t have enough information. We don’t have the right support for this deduction or this is an unauthorized deduction, and it’s just kind of a click of the key and they get that message and it’s not somebody composing it we have templates, we can use to talk to them through that. So changing the processor is a quick three steps. As I noted before if you’re working in groups or in packets. It’s three steps for 1000 invoices, instead of three steps, 1000 times. So, it’s really helped us in streamlining just even the notification to the upstream department of what their deductions are to work that day. And we can include, you know, the type of notes we can give it categories we can give additional correspondence in there, let them know.

[20:47] Cindy Scott:

We had a situation where we had handset returns that we thought we were finished with for one partner and all of a sudden we got 700 handsets back. So we could attach that correspondence. When we did that, it automatically notified the owner that we have the 700 handsets. It kind of, you know, stuck out like a sore thumb because they weren’t used to seeing notes come through. So they were able to jump on it right away and it didn’t require an additional email while we’re in the system working the deductions. As I said, we can do customer correspondence and we can create templates for the disputes. For the need for additional support, that kind of thing. And just click the button and send them a dispute, email, again you have to maintain your customer Master, make sure that you have those addresses in there that takes a little effort but once you have it in there and you are sure that you’re on the chain for updates and things like that it works out pretty cool we’ve actually only probably had three emails bounce on us. Do you know, we can use the templates, we can have any other kind of verbiage we want in the body of the email. And then the third pillar-like I said it was around reporting. And we needed it to be as real-time as possible. You come upon quarter close and everybody wants to know what deduction aging is what your balance is, is it going to tie to the general ledger. We also really wanted it to be able to hold upstream folks accountable.

[22:27] Cindy Scott:

And I’ll give you, I’ll show you some examples here in a minute, and give us an understanding of those deductions that have not been cleared. We wanted to be able to run analytics and reporting to see, you know what patterns were there, common things that were hit by a common department person, that was not clearing their deductions timely. Is it a common program? Was it, you know, gosh, all of Kroger Southwest division Black Friday didn’t clear where we needed reporting to be able to tell us those stories. So we were trying to just kind of muddle through and figure it out for ourselves and find out six months later, that we hadn’t gotten those thousand invoices from Kroger. So there’s out of the box reporting, that’ll let you slice and dice the data, just about any way you can think of. One of the things that we like just flashing up we have. We used to have weekly meetings with the, what we called our production partners, and that would be the marketing and telecom team. When we were trying to, you know, carve away at that $4 million. That’s now moved to a monthly meeting. Unless we’ve all agreed that if we hit a certain point of the deduction dollar amount of deductions over 60 days that we will re-engage more often but as long as we stay under that threshold, we have monthly meetings, and we can flash up there, here are all the outstanding deductions. Here’s who they were routed to, who the processor is. We can do it by a partner. And we can do it by the aging bucket. There are so many ways to slice and dice it depending on the canned reports or, one way of looking at it. But I can also export data from HighRadius in date ranges, all of it certain, certain fields whatever I kind of want to play with through the Advanced Search function, give me a list of all of the detection line items, then I can export that and slice and dice up my own way. So if there isn’t something that is accommodated through the Advanced Search function to create a report. I can do it with the raw data and it’s super simple. It exports it in Excel format and it’s just. We’ve done a lot with that just even analyzing our own workload and timing of clearing deductions. See what another result.

[24:54] Cindy Scott:

So we have 95% increased timing of resolving deductions, we don’t have that mountain to try to scale every day, wondering if you know where do we even begin to dig away at these deductions, we’re now able to clear deductions, typically within 60 days, and that’s usually only because we’re waiting for data from the card partners and we can’t really control that. But we will have at that point, we’re just, you know, just sitting there waiting for their data when it’s ready. And as soon as that data comes in, and the marketing team or whoever can validate it. That production will clear the next day. We have a clearly reduced aging and improvement in our over 90 days. We have, I checked right before I came here. This shows that there were 142 deductions over 90 days when this slide was created. We’re now at just under 100 production line items over 90 days. Total about $25,000, so remember we had $4 million that was over 90 days. And we got that down to $25,000 and we’re maintaining and then oh, by the way, we were able to go down in headcount, we basically just repurposed our headcount. We had lots of other processes that needed attention, and there were a lot of eyes and hands and headaches involved in the production process and we were able to reallocate that to the next problems, none of which thankfully were quite the magnitude of the deduction world. So I actually have one full-time analyst on deductions now. And she’s able to back up the cash app and customer setup team as well. So she’s not even really full time on deductions, nobody gets the times like those holiday times, but for the most part, she can assist in other areas quite a bit as well.

[26:54] Cindy Scott:

Best Practices. Cindy Scott 26:57Define your requirements in detail. I think it is a bit of an advantage because it was, you know, I didn’t know anything so I had to ask a lot of questions to determine what the requirements were so that we know, you know what the software could even do, what a deduction was, how it got cleared and what the process is. Know your upstream and downstream partners in the process. The second one is, you know, customize it according to your customer requirements, you have to reach out and talk to your customers to know their requirements. Remember the example Kroger’s invoice numbering, nobody had talked to them to find out if there was, you know, any rhyme or reason to their invoice numbering process, so just reaching out having those conversations, understanding what their dispute processes so that you can get it set up. So the middle route, when you dispute something that correspondence will route to the right place. So there’s a lot of legwork upfront, just to understand and define, you know, what your objective is, what do you want it to do. And try to drive towards that objective. If you have an existing production process, don’t try to make it fit the current process. You know what’s the best process and what can be maximized by the software and, you know, manipulate your process or change your process to accommodate that. The other example I gave was with the marketing team who just had no interest at all in participating with HighRadius. We worked, you know, with the brainstorming and you know what, what can we do to make your job easier, and we actually altered our process a bit just to help them and didn’t add any time to our process. We just had to change what we thought was the right way to do it, which enabled them to then use the software and maximize it for their needs as well.

[28:48] Cindy Scott:

Plan for contingencies, when we implemented the next software, It was such a lifesaver it was, you know, kind of angel from above. We didn’t have any issues, it was so much better than anything we had. We were just very grateful for it. We, we kind of got a little complacent I think, okay this is so much better than anything we’ve ever had. We’re good. And we then implemented the cash out software a year later, and because it had gone so well with deductions, we wish that we were a little complacent. We didn’t probably test as robustly as we should have on those two modules working together and how the deductions were going to route from the cash app and what that would or wouldn’t do to the rules we already had set up in the deduction module. So think about those things and also if your deduction modules get to interface with your ERP. So, this will automatically make all those journal entries that I was talking about the expense of liability accounts, and clearing accounts.

[29:52] Cindy Scott:

Make sure that the RP team is involved clearly, and that you understand what that impact is. And then think about the GL accountant who’s going to all of a sudden have this, you know this activity on the general ledger that maybe looks a little different, has little different naming conventions or something like that give them a heads up because they freak out, and they think you know the trolls are in their GL so it’s a lot of communication. A lot of making sure that it flows all the way through. And that you’re planning for a kind of worst-case scenario where you can. So that’s all, anyone has a question. Do we need a microphone?

[30:37] Cindy Scott:

I don’t think it’s your entire database of customers on this induction module or just your customers that take long. It’s just our customers that can contractually take deductions. We’ve had a few instances where customers started taking deductions and it wasn’t, you know by contract. And just to manage the headaches that were causing the folks trying to apply cash, we created deduction accounts for the kind of on the fly. While we have sales working to remind them that they’re really not supposed to be doing this. Okay. The detection module interfaces with your collection module, and if so, is it all high rate. So we don’t have the collections module for HighRadius that we are entertaining. It does not interface. Well, I guess it does. So, the way the deductions come through. They get applied to a separate customer group. So they’re really within our total AR ledger balance. But they’re separate customer groups so there are regular, normal, you know, paying customers and then we have the deduction customers, to add it together are our sub Ledgers for that GL. So do you have the same people doing well? No, I have a separate HR group.

[31:57] Cindy Scott:

Yeah, that was the problem, we have the same people. They have conflicting priorities for sure. Okay, about customer service in your company, and what is the responsibility. In a lot of cases for pricing. So in our case deductions are not at all claim related, they’re strictly companies paying themselves instead of sending us an invoice, they take money off of them for the payment that they are sending to Blackhawk, so we don’t have any interaction with them. Claims go through a whole separate process. Not so much, surprisingly and I came from the transportation industry where every single invoice was short paid for some reason, and you know it can be something that could be millions, and here at Blackhawk very few invoices are actually short paid. So I guess we’re blessed in that way.

[33:14] Cindy Scott:

Any other question. Yes. So your results showed what was the time difference between the quarter-million-dollar over the 90-day balance to get into Sundance $100, so we got to a million from 4 million to a million in nine months. And then just having the visibility to it made such a huge difference because then everyone knew which were the big hitters and it was in those handset returns, and then being able to categorize it by customer. Okay Krogers the worst, and just you know developing a strategy because we have that visibility, it was eye-opening.

[33:55] Cindy Scott:

And then we got down. It probably took us another six months to get. We do the math right, it’s another nine months to get to where we are now, but it fluctuates too. Yeah. All right. Thank you, everyone.

[0:00] Cindy Scott: Hello everyone, I'm going to first tell you that I'm not gonna move around a lot because this is high, and I'll probably fall off and it kind of creeks and this makes me really nervous. So, I'm just going to pretty much stay still. Sorry. This is really high, it's kind of bizarre, so bear with me. (Audience Laughter) If I screech once in a while you'll know why. So, let's just dive in. I wanted to talk a little bit about the deductions management solution and how we implemented that at Blackhawk and why we implemented it. Is the slide working? [0:38] Audience: I think you have to go down. [0:40] Cindy Scott: There we go. Okay! Down it's a scary word right now. (Audience Laughter). So I'll give you a little background as I said about Blackhawk. What does the deductions landscape look like? What we decided is that we need the building blocks for a solution. When do we start looking for one? What that solution in action would look like? Some of the results. And some of the key benefits and best practices that we identified along the way. [1:09] Cindy Scott:…

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Most A/R teams absorb deductions as the cost of doing business. Automation technology is available to help manage deductions and reduce write-offs. Learn about the three must-have functionalities for a deductions management solution to include structured workflows, task automation, and out-of-the-box reporting and analytics.

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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.