What are deductions? Deductions are reductions from existing invoices applied by customers. Deductions originally focus on events directly related with the invoice they are applied against (e.g.; terms, quantity shipped, corrections, damaged goods, pricing errors). Over the last 20 years, customers in all segments can “deduct” any dollar amount they deem to be “due”.
We’re all in agreement – it’s not easy to catch invalid deductions from your retail customers. And, it’s even more challenging to successfully get all that information together so the invalid deduction(s) can be reconciled in a timely manner. Without automation, repayment is as unlikely as finding a pot of gold at the end of a rainbow.
Big Issue #1: Retailers are notorious for setting limited time frames for manufacturers to request repayment.
For most manufacturers, getting accurate deduction information to their retailer customer within the 30, 60, or 90-day window is nearly impossible.
The secrets to make repayments a reality are speed and visibility; two factors that come as a result of the real-time data turnaround delivered in an innovative trade promotion management (TPM) system.
… Could you imagine getting a six-figure payout for reconciling invalid deductions?
A Blacksmith retail TPM customer in the dairy industry did just that — by leveraging Blacksmith’s technology and team expertise.
Pull up a chair, we’ll tell you a classic tale of data automation and visibility:
At the beginning of 2019, this dairy customer brought the repay process in-house. With Blacksmith’s TPM tool, “we have a lot more visibility on the backup of claims and deductions,” said the Director of Business Development and Trade Marketing.
The dairy manufacturer manages all aspects of its trade spend with retailers through the trade tool – off invoice, promotional spends, lump sums, and no-show off invoice.
With Blacksmith’s TPM system’s automation and functionality, the manufacturer can determine if a deduction is valid or not as soon as it’s received. If it’s invalid, they can quickly get communication started with the retailer.
“In the beginning, as Blacksmith’s customers get into the system, there’s visibility into what they’ve been paying on. Now, they can validate those payments, and call out those that aren’t correct,” says Raegan Denny, Blacksmith account manager.
After only a few months, the manufacturer caught invalid deductions coming in from one of its retail customers. “Ideally, you want to find out that the invalid deductions are a one-time issue,” the customer adds. “You might catch a systematic error or process problem, correct it, and no longer receive those invalid deductions. In this instance, we singled out the issue and determined that it’s something we can fix going forward.”
But the key to success lies in repayment, not just recognition. To get started, the manufacturer’s dedicated team gathered up information to show that the deductions didn’t make sense. And off they went to the retailer – armed with information.
The retailer repaid as a result of clear information; concluding that the deductions were invalid. The customer continued to reclaim their revenue. Invalid claims and deductions associated with other time periods for that same retailer were also repaid.
Denny explains that Blacksmith’s TPM solution was a significant contributor to the customer’s achievement of reducing their deduction balance by almost $5 million. “The turnaround time is what really matters here. We have weekly updates where we review repay summaries, outstanding pends, deduction balances, and the claims deductions that are open or collected on.”
The manufacturer credits Blacksmith’s deduction management expertise for their huge success. And the Blacksmith team notes that the manufacturer’s team is really dedicated. “Their team works hard to stay on top of deductions and pendings, they’re in the system driving results,” Denny says.
With both sides combing through the data, it’s easier to flag data that doesn’t look right. And, with Blacksmith TPM, all information is saved within the application.
The business development and trade marketing team are in the tool, and if the rebill isn’t eligible, they use the system-generated rebill letter, send it out, track it, and add notes in the system when the payback is complete.
With Blacksmith’s team, “you’re dealing with a group that really understands the book on deduction management,” the customer continues. “They know what should be acceptable – customer by customer, and they knew something was wrong with the data they were receiving. They flagged it, which was the first step in getting the repayment.”
The Blacksmith TPM application is user-friendly, it “gave us the ability to search for any deduction – using the name or product type – and that’s really useful,” says the Director of Business Development and Trade Marketing. The ability to summarize outstanding repays and dive in quickly with all the backup attached is an unparalleled benefit. With Blacksmith’s team and TPM, “we’ve eliminated storage in various places, it’s all centralized.”
10 Ways You Can Improve Your Retail Deduction Balance
- Invest in a trade promotion management tool to gain visibility into trade spend being paid by deduction. You’ll decrease delays on claim settlements and be able to identify and decrease discrepancies.
- Create an automated workflow process for deductions. No more wasted time chasing down required backup information.
- Integrate ERP and TPM. Create an easy flow to match deductions against rebates and promotions.
- Match open deductions with promotions or rebates that have the same customer number and spend liability dollar amount.
- Identify customers taking invalid deductions at your deduction tolerance level. Work with your customers to get repayment of any invalid deductions. This will help you change customer behaviors.
- Automate! Mass clear deductions to reduce redundant data entry. Allow ERP integration for journal entries on reconciled deductions.
- Build a standard repayment letter to go after money due. Provide your customers with details on why their deduction was invalid. Increase your bottom line and decrease the amount of money you write off.
- Track invalid deductions. Request outstanding invalid deductions by sending (and resending) the repayment letter follow ups.
- Implement a write-off process.
- Set a deduction balance goal. Identify a balance goal so you can measure your success. Identify red flags in your process if your balance goes above the limit. Increase your accountability.