Shifting Focus to Invalid Deductions


How Fortune 1000 companies and SMEs automate credit and accounts receivable operations to improve productivity and reduce DSO and past-due A/R.

Contents

Chapter 01

Executive Summary

Chapter 02

Customer Onboarding and Credit Approval Process

Chapter 03

Dynamic Scoring for Credit Review

Chapter 04

Improving the Invoicing and Payment Process

Chapter 05

Deciding Who to Contact on Any Given Day

Chapter 06

Collections Correspondence Strategies

Chapter 07

Doubling Down on Collections by Eliminating Waste from the Cash-Application Process

Chapter 08

Providing Research Ready Deductions

Chapter 09

Shifting Focus to Invalid Deductions

Chapter 10

Leveraging a Connected Platform for All of Credit-to-Cash

Chapter 11

Collaboration with Buyer A/P teams

Chapter 12

Accounts Receivable on Autopilot ? Autonomous Receivables

Chapter 13

Summary

Chapter 14

About HighRadius
Chapter 09

Shifting Focus to Invalid Deductions


According to the study by Attain Consulting Group, about 90% of deductions are valid, and about 60-80% of the valid deductions are related to trade promotions. Whether the deductions are valid or invalid, analysts spend the same amount of time in resolving deductions. Deduction Management teams and analysts process hundreds of thousands of deductions every year. However, even if a deduction is valid, it still requires a set of manual, time-consuming tasks to be executed before an analyst is able to determine its validity. With more than half of all deductions being valid, this means that credit and A/R teams lose productivity that could have been spent on resolving and collecting on invalid deductions. Hence, there is value in weeding out invalid deductions and adding dollars back to the bottom-line.

9.1. The Deductions Paradox

The Deductions Paradox: Inability to prioritize deductions

Figure 18: The Deductions Paradox: Inability to prioritize deductions

As Figure 16 highlights that a high dollar value invalid deduction should be the highest priority for the deduction?s analyst whereas a low dollar value valid deduction should be at least priority. However, the analysts do not know which deduction is valid or invalid and hence, work on all the deductions. In other words, you do not really know whether a deduction is worth researching unless and until you have already worked on it. As a result of this, the analysts end up:

  • Wasting time on verifying valid deductions
  • Having very low recovery-rate due to lack of time to pursue invalid deductions
  • Writing-off deductions that could have been invalid

9.2. How Top Organizations Automate Deductions Operations

Two Steps to Automate the Deductions Process

Figure 19: Two Steps to Automate the Deductions Process

In order to reduce the time-crunch on deduction resolution, the AI enabled system predicts the validity of a deduction by analyzing several factors like payment history, customer account etc. and then compairing against the characteristics of the new deduction in question. †With these predictions, 70% of the deductions worklist is automatically resolved. For the remaining 30% deductions, the system provides recommendations. These recommendations are based on certain confidence categories. For example, it might predict for a certain deduction that it is 80% Invalid. This means that there is an 80% probability of this particular deduction being invalid. Similarly, it can predict 65% Invalid or 50% Invalid. On the basis of these recommendations, the deductions worklist gets re-prioritized to work on the highest probable invalid deductions first.

9.3. Deductions Automation Success Story: Keurig Dr Pepper

Keurig Dr. Pepper, the beverage manufacturer, had a high volume of deductions before leveraging automation. By leveraging automation to reduce the deductions workload and focus on root cause analysis, Keurig Dr. Pepper was able to recover an additional $1.4 Million in invalid deductions and also reduced the volume of deductions by 13%.

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HighRadius Integrated Receivables Software Platform is the world's only end-to-end accounts receivable software platform to lower DSO and bad-debt, automate cash posting, speed-up collections, and dispute resolution, and improve team productivity. It leverages RivanaTM Artificial Intelligence for Accounts Receivable to convert receivables faster and more effectively by using machine learning for accurate decision making across both credit and receivable processes and also enables suppliers to digitally connect with buyers via the radiusOneTM network, closing the loop from the supplier accounts receivable process to the buyer accounts payable process. Integrated Receivables have been divided into 6 distinct applications: Credit Software, EIPP Software, Cash Application Software, Deductions Software, Collections Software, and ERP Payment Gateway - covering the entire gamut of credit-to-cash.