August 30th, 2016

The Consequences of Manual Deductions Management

For manufacturers of consumer goods, deductions are an undesirable but commonplace reality. A CPG (consumer packaged goods) manufacturer sends an invoice to a retailer for $100,000 of goods but yet only receives a cheque for $90,000 in return. Why? The retailer in question has applied “deductions”.

The deductions management challenge

Deductions can be applied for any number of reasons – shipping terms, payment terms, display allowance, damaged goods, returns, price discrepancies, products discontinued, mark-down allowances, advertising allowances – the list goes on. This leaves the accounting team at a CPG company with a major headache if they must manually track, identify and process thousands of individual deductions.

Such a redundant, repetitive manual deductions management process results in a number of negative consequences for CPG companies.

1. Expensive resources spent on low value tasks

Relying on inefficient business systems and the use of printed deductions forms results in a slow, repetitive deduction management process. Often CPG companies must dedicate key personnel in their accounting team to focus on processing and investigating deductions. An expensive resource is being spent on low value, mundane tasks.

This was certainly the case for MTD Products, a leading manufacturer of outdoor power equipment. Before they implemented Cashbook’s deductions automation software, MTD Products needed a dedicated team of 8 full time staff to manually process thousands of deductions on a daily basis. As MTD expanded its reach into new markets, this labour intensive deductions management process escalated further, drawing on even more company resources.

2. Working capital trapped in OTC processes

When your accounting team is faced with processing thousands of deductions every week, the likelihood is that lower value deductions will not be investigated. There is a significant investment of time involved in investigating, following up and closing deductions, even for low value amounts. The time to do so often simply cannot be justified. However, the number of low value deductions can quickly add up and lead to a significant amount of working capital effectively being “left on the table”.

Before MTD Products implemented Cashbook deductions software, deductions less than $25 were not investigated by some customers and therefore were not repaid. As smaller value items made up a huge slice of MTD product sales, this amounted to a substantial loss of cash each year.

3. Poor visibility of a lengthy dispute resolution cycle

Where deductions are being manually investigated and disputed, the dispute resolution cycle can be considerably lengthy. It can take months for disputes around deductions to be successfully settled and re-paid by retailers.

Where CPG companies are relying on the use of manual deductions management processes and paper claims and invoice documents, visibility of the dispute resolution cycle can be quite poor too. Tracking is often disorganized and it can be incredibly difficult to monitor the status of disputed deductions. As a result, there are a number of disputes that are never followed up and resolved.

Let technology do the work

CPG companies worldwide can create a more streamlined deductions management process with Cashbook deduction automation software. Cashbook’s ability to automatically assign deductions types significantly decreases the “unknown” items. Our deduction bundling algorithms ensure that you have a clearer picture of the total outstanding deductions figure.

Using Cashbook, MTD Products are now automating 200+ EDI files per month, making it easier and faster to post deductions to Walmart, Best Buy, K-Mart, Target and more. Request a demo to discover what level of deductions automation your company can achieve with Cashbook.

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