What are the best practices for efficient deduction and claim processing? For foodservice and consumer goods manufactures, starting with a contract management tool that centralizes trade programs and settlement information in one place is the first step. Then, you can focus on standardizing your process.
Some of the most critical pieces of trade promotion management include budget planning, deduction management and claims processing.
When properly managed, these processes boost a company’s profits and reduce losses.
Given the complex trade spend process… managing billbacks, deductions and claims is an ongoing challenge for foodservice manufacturers.
If you’re looking for a proven method to standardize and manage your trade deductions and claims process, I recorded a webinar with a detailed review of the 10 steps you can take to launch a more efficient deduction and claims processing method.
The Building Blocks for Better Deduction Management
🧱 Invest in an organized contract management tool
🧱 Create standardization for claim submission
🧱 Enter deductions in your internal ERP system
🧱 Streamline deduction/claim processing
🧱 Track customers not submitting backup properly
🧱 Build a standard repayment letter
🧱 Track collections for invalid deductions
🧱 Implement a write-off process
🧱 Set a deduction balance goal
🧱 Create a deduction task force
Let’s take a closer look at each of these steps.
Step 1 » Invest in an Organized Contract Management Tool
First, set up a process with your team to ensure contracts are created and approved on time. Then communicate and review the deals with your customers. Your customers need the right information in their system to track and create deductions when necessary.
Simplify your contracts where possible. If the contract is complicated, it creates confusion and makes it difficult for distributors to enter and create a claim against it.
I also recommend that foodservice manufacturers move contracts to rebate instead of fixed price. A rebate is more straightforward for distributors to execute against.
Step 2 » Create Standardization for Claim Submission
Now you’re ready to develop claim submission guidelines for your customers.
Outlining your claim submission guidelines makes customers aware of the information you need to process their claim as fast as you can.
I recommend including fields like:
- Distributor ID
- Distributor name
- The amount you’re claiming
- What program / operator are you referencing
- Your preferred format of claims submissions
- Where to send invoice information
Reduce unnecessary confusion by providing customers with advanced notice of any changes to your current processes.
Step 3 » Enter Deductions into Your Internal ERP System
I recommend that you create a process for the cash applications team when coding deductions. Utilizing reference numbers on claims backup enables auto match. So, creating that process means less deductions and billbacks for your analyst to match, and less manual intervention.
Then, enter your information at the distributor house level. If you enter claims at distributor house level, but the deduction is created at a higher level, it may not auto match. That leaves additional deductions and billbacks for your analyst to offset.
Step 4 » Streamline Deduction / Claim Processing
In my experience, between a trade management system and ERP system – if you have the same deduction amount, customer number, reference number – those claims can be offset automatically. Foodservice manufacturers should encourage their deduction management & claims processing teams to collaborate. Talk about whether one of your distributor customers is a serial deductor. Is there a way to standardize the reference number for them?
If a distributor is not submitting in your preferred format (like Excel or EDI), what software can you invest in to help you work faster? Remember, your goal is to get the submissions into a useable format to audit – and then submit the claim. You want to approve billbackss quickly; you don’t want to add age to deductions.
Step 5 » Track Customers Not Submitting Backup Properly
It’s a smart idea to identify your customers that aren’t sticking to your established claims submissions guidelines.
Check that your terms and conditions are clearly defined on the programs (and enforce them).
If you’re not getting traction from the customer on some of these issues – whether they’re not submitting back up – sometimes getting sales involved will help move the needle.
Watch the webinar:
Step 6 » Build a Standard Repayment Letter
After a deduction has been audited and validated, if there is an invalid amount taken by the distributor, develop a standard repayment letter that provides them with the information regarding the invalid claim. Include:
- Operator (if applicable)
- Reference Number
- Time Period
- Invalid Claim Reason
You’ll get more traction for repayment than if you don’t send a repayment letter at all. Be as specific as possible for the invalid claim reason to get that money repaid. Don’t forget – generate and send the repayment letter in a reasonable amount of time. If you wait too long, the customers will be less willing to work with you (especially if they owe you money).
Step 7 » Track Collections for Invalid Deductions
After you send the repayment letters, follow up with customers that haven’t responded. Track your collection rate by the customer – know which customers have outstanding deductions and who repays you.
If you are reaching out to customers and they’re still not repaying you or willing to work with you, then here’s a strategy you can use: Account for invalid deductions during local marketing program negotiations.
Step 8 » Implement a Write-Off Process
Create a write-off policy for your company. A write-off policy helps clear aged and invalid deductions when no clear resolution is achievable. If you have old deductions, and aren’t getting tractions with the customer, decide when it’s time to write that off. Is it 100 days? 250 days?
Step 9 » Set a Deduction Balance Goal
I would set a deduction balance goal for cross functional groups in your organization – cash app, the deduction management team and the claims processing team. Encourage collaboration between groups to help achieve your goals. And, of course, celebrate your wins!
Step 10 » Create a Deduction Task Force
Put together a cross functional team to help resolve customer issues and create a target customer list that identifies the top 10 customers who:
- Don’t adhere to your claim submission guidelines
- Have the largest invalid claim balance
- Submit outside of the acceptable claim timing guidelines
and hold your customers accountable for their behavior.
5 Benefits You Gain with TPM Automation:
- Gain visibility into contracts and settlements
- See all contracts and settlements in one place
- Improve accuracy and decrease discrepancies by auditing
- Utilize TPM system functionality to streamline deduction and claims processing process
- Track settlements (including short pays)
97% of all Smucker’s claims process automatically