Deduction Management – How can you turn deductions back into Profits
In this blog we will talk about the path your business should take to manage and reduce deductions received from your retailers and distributors. The goal is to turn deductions from an expense back into a profit.
BEST PRACITICES:
For all chargebacks received that have not been previously approved by your sales team the following best practices should be considered. Please feel free to contact CAS Worldwide to discuss how your firm could put these practices into your business process:
Any chargeback that has not been approved in advance should be contested, as many times retailers/distributors use chargebacks as a profit center.
Most chargeback disputes are winnable as long as your accounting and sales team stays on top of them and is vigilant in keeping on the retailer/distributor to provide the proper backup documentation. Many times there is no backup documentation to be shared and therefore they will have little choice but to drop your claim and refund you the money. the trick is to be persistent with your requests.
Your company should have a clear-cut policies on how you will accept a claim. These policies should outline to your retailer/distributor what they should in order to submit a claim to your organization. It should spell out communication protocols they you require in order for a claim to be submitted. These policies should be made available on your website so they can be easily accessed. You could then use these written policies to mitigate any unauthorized deductions.
As a last-ditch effort do not be afraid to use some muscle and let your buyer know that if the claim is not reversed that you may have to put future purchases on hold. Even if it is an idle threat the buyer does not want to interrupt their business and most times will help you recover unsubstantiated claims.
ACTION PLAN FOR DISPUTING CLAIMS:
We can break down unapproved charges into six different types of disputable claims that will require an action plan to ensure that each claim can be disputed timely and properly. The claim types are as follows:
POD claims
Damages – in transit
Damages – in store
Shortages
Reclamation
Unsalable or discontinued product
Cash Discounts – taken after the agreed upon date
For each of the above categories we will provide a simple action plan that could be enacted in order to help mitigate and fight disputed chargebacks.
Below are a set of actionable tasks that could be put into your business process and allow your accounting and sales team to recoup lost revenue.
POD Claims – most of these type claims should be able to be processed quickly.
When a POD claim is received an Outlook task should be created, with a follow up action having a deadline of 7 days to complete, as most POD claims come with timeline from the retailer or distributor of when they could be acted upon
An email should be sent to the warehouse transportation manager requesting the Bills of Lading
If a response is not received in 5 business days from inception a reminder email should be sent out and a dispute should be sent off to the retailer or entered in the distributor’s portal to provide more time to complete the dispute.
Once a return email is received from the warehouse it should be noted in the task that was originally created and then forwarded via email to the retailer or to the distributors portal for dispute.
Once this is done the task could be closed.
All open tasks should be reviewed by the accounting manager weekly to ensure that the proper follow up is occurring.
Shortages – The types of claims are similar to the POD where you will need information from the warehouse in order to match up to what was presented from the retailer or distributor. The process related to these claims should be as follows:
Task should created for all shortages with a follow update of no longer then 14 days from the date of receipt.
An email should be sent to the warehouse transportation manager requesting all loaded pallets and pallet weights along with the Bill of Lading, similar to a POD request.
If a response is not received in 7 business days from inception a reminder email should be sent out and a dispute should be sent off to the retailer or entered in the distributor’s portal to provide more time to complete the dispute.
Once a return email is received from warehouse it should be reviewed to ensure it matches what was originally sent and logged against the task and then the email with supporting documentation should be forwarded to the retailer or put into the distributors portal for dispute.
The email must be strongly worded to let the retailer/distributor know that it is not your policy to accept shortages without proper backup documentation and therefore you are requesting they reverse the claim based on the documentation attached.
Once this is done the task could be closed.
All open tasks should be reviewed by the accounting manager weekly to ensure that the proper follow up is occurring.
Damages in Transit - The types of claims are similar to the POD where you need information from the shipper to match up with what was presented from the retailer or distributor. The process related to these claims should be as follows:
Task are created for all shortages that have a follow update of no longer then 7 days as in-transit claims require a shorter window to make a claim against certain carrier types.
An email should be sent to the shipping company requesting information related to the shipment and providing information received from the retailer/distributor.
If a response is not received in 5 business days from creation of the task a reminder email should be sent out and a dispute should be sent off to the transportation carrier.
Once a return email is received from carrier it should be reviewed to ensure it matches what was originally sent and logged against the task and then forwarded via email to the retailer or put into the distributors portal for dispute asking them to reverse the chargeback based on the information provided.
Once this is done the task could be closed.
All open tasks should be reviewed by the accounting manager weekly to ensure that the proper follow up is occurring.
Damages– in store – with these type claims it is all about being persistent and getting from the retailer proper backup information.
A task should be created to acknowledge the damage is being worked on with a follow update in 7 business days.
Email should immediately go out to the distributor or retailer asking for additional information and pictures of the damaged product.
This type of claim should always be fought to ensure that the retailer/distributor is not taking advantage of you.
The email should be worded strongly to alert the retailer/distributors that these are not acceptable claims because the way pack our product ensures limited or no damages will occur.
Reminder email should be sent in 7 days if not backup is received
A follow up should be created for 7 Days after the reminder email is sent to dispute the claim either with our without backup.
These claims should be escalated to the category manager/buyer at the retailer/distributor, if necessary, after the dispute is filed, to let them know that the claim is not being accepted unless proper backup documentation is received in a timely manner.
Once this is done the task could be closed.
All open tasks should be reviewed by the accounting manager weekly to ensure that the proper follow up is occurring.
Reclamation Unsalable and Discontinued Product– The types of claims are difficult to substantiate and require tenacity and a good process to try and recoup these loss funds. The process that could be used to dispute of these claims should be as follows:
As each claim is received it is advisable to create a credit memo in your accounting system to properly track the value and exposure you have to these claims and then followed up with the following tasks.
All claims of this type come with a window of time for a dispute to be made and you want to make sure that all are disputed properly and before the window expires for filing a dispute, which is usually 90 days from claim date.
It is understood that most of the claims will come through with limited, if any backup information.
The key to winning these disputes is being aggressive and pushing forward on an agenda that denotes that your company is in the right and they have no right to charge you for such a claim without proper backup documentation and you will not accept such a claim without documentation.
A Task should be created for each claim type that will require a follow update of no longer then 14 days.
An email is sent to the Sales Department, along with any backup documentation, upon creation of the credit memo stated above. The Sales Department should provide validation of the reclamation amount and if the amount being taken is in question, then an email should be sent to the retailer or distributor – acknowledging receipt and asking for additional backup information. Along with the email you should point them to your documented returns and reclamation policy that should be on your website. The policy should state the process around reclamations and that chargebacks of unsaleable product should be the last resort and only after the sales team has approved the amount to be charged.
Follow up tasks are set for 10 days after the first is sent to review and resend emails if nothing has been received
Once a response is received from the retailer/distributor it is reviewed to determine the following:
If they tell you, they have no backup information, an email should be sent to the retailer/distributor category manager/buyer letting them know your policy and that you cannot accept claims without proper documentation.
A follow up task is set for 5 days to follow up with the category manager, where an email can be sent stating that the CFO has requested the account be put on hold until documentation is received.
A follow up task is set for 5 days to review and determine what else can be done – resending the last email a second time is a good course of action.
After the second email the claim should be sent to your head of sales for final disposition.
As soon as any backup documentation is received it should be forwarded to the sales Department for review and acceptance – if the sales manager deems the charges reasonable then the task related to the claim should be closed as acceptable.
All open tasks should be reviewed by the accounting manager weekly to ensure that the proper follow up is occurring.
Cash Discounts taken after the allowable discount period.
These are nuisance claims and are most always taken by the accounts payable systems used by retailers and distributors no matter when they pay your invoice.
These claims once fought will be returned to you and once you establish a pattern of fighting these claims that will most certainly go away after they are fought a few times.
The action plan for these type of claims is simple. Just send back to their accounts payable department a copy of the original purchase order stating your acceptable payment terms along with a copy of the check stub evidencing when payments were made along with the unapproved charge taken related to discount period. In the email request a refund of the discount taken and follow up with the accounts payable department one week after your initial request to ensure that they have received your request and are going to reverse the charges.
A task is not required to manage these deductions, but could be created in order to help your accounting team follow up on getting back the returned charge.
I would suggest taking a look at Goldfinch Cloud Solutions -Food ERP Management system, which has a promotion through deduction management process built into the application. Goldfinch Cloud Solutions is a 100% native Salesforce application, built by subject matter experts in the food and beverage industry. www.goldfinchcloudsolutions.