6 Straightforward Ways to Improve Deductions Management for Suppliers

Poor deductions management practices are like pin holes in your revenue bucket, constantly dribbling away your cash. That’s money your company could have used to reinvest in the business or pursue new growth opportunities.

Getting deductions right not only preserves profit margins, but also gives your clients confidence in your ability to do business. In short, you have nothing to lose (except those pesky holes in your bucket) and everything to gain by improving your deductions management.

These 6 tips and trends can help you overhaul your process while preparing for upcoming shifts in the deductions world. 

Compliance deductions & post-audit deductions require careful monitoring & management

These two types of deductions can quickly add up if you’re not paying attention. A compliance deduction occurs when a supplier fails to meet established operating standards or contract terms — for example, shipping issues or product quality problems. A post-audit deduction, on the other hand, comes about when retailers review past transactions (often using third-party auditors) and discover errors or missed discounts, such as overpayments or unclaimed rebates.

Thanks to ever improving audit technology, retailers can identify more compliance and post-audit deductions than in the past. More deductions take more money out of your revenue bucket. In addition, post-audit deductions may not be spotted until months after shipment, which can make it extra challenging for you to research and validate the claim on your end, much less budget for it.

As these two deduction types become larger pieces in your overall deductions pie, you need strategies to prevent what you can and resolve what you can’t.

Review your current processes: are they mostly paper-based or dependent on a patchwork of different systems? Is finding information like pulling teeth? Is there good communication between your claims team and your deductions team? Does progress grind to a halt when one person is out of the office?

Evaluate your current tools: Are they providing enough visibility that you can easily see what’s causing various deductions? Do they support fast, accurate claims research and resolution? Do they keep your claims and deductions teams connected and provide a centralized location for all necessary data?

Root-cause analysis helps reduce non-trade deductions

Whether it’s returns, damages or shortages, non-trade deductions can have a variety of causes. Knowing what underlying issues are resulting in non-trade deductions is the first step towards reducing them. Conducting root-cause analyses on a regular basis shows you where your deductions are originating so you can take action to correct the causes.

Any analysis is only as good as the raw data that’s being examined, so it’s important to have complete, accurate data on your deductions before you start. If you discover that finding, gathering and organizing the data you need requires accessing multiple siloed systems, moving data manually from one system to another and taking time away from more high-value tasks, you may want to consider a better data management solution for your deductions.

Communication is king

When communication breaks down — whether internally or between you and your retailer customers — problems happen. And those problems often lead to costly deductions.

Consider this example. You receive a purchase order and begin fulfilling it. But then, your customer sends over a PO change. Uh-oh. Now you have to start over. What if the customer sends over another PO change after you restart the fulfillment process? Or they change their order after the order is packed and awaiting shipment? You could end up missing a PO change or shipping the wrong product type or quantity — all things that’ll result in deductions.

Clear, regular communication can prevent deductions before they even begin. Set realistic expectations with your customers regarding PO changes. Provide a portal that gives your customers a single way to interact with your team so messages can always be directed to the correct point of contact. Ensure your internal sales, customer service, logistics and shipping teams can easily collaborate without having to go back and forth between multiple tools (various email inboxes, chat, order management system, etc.).

Deductions management is everyone’s responsibility

Poor deductions management impacts everyone, because when the business loses money unnecessarily, everyone suffers. So it’s up to everyone — sales, credit, accounts receivable, cash application, collections and deductions specialists — to take them seriously and help resolve them.

Holding staff accountable for things like proper documentation, timely responses to deduction-related requests and streamlined collaboration with other teams can go a long way towards reducing deduction losses.

It’s time to retire paper-based & manual processes

Twenty years ago, suppliers had no other option but to use paper or spreadsheets to manage deductions. Now that multiple purpose-built software solutions exist not only for deductions management but for other processes in the order-to-cash cycle, there’s no excuse to keep using outdated tools.

Picture it: one easy-to-use, cloud-based system for all of your deductions data, activities and communication. Time-consuming, manual tasks like data entry taken care of by AI-powered automation. Total visibility into your processes and performance. Helpful data analysis for better root cause analysis and decision making. Sounds pretty nice, right?

Think you can’t afford to invest in better technology? Actually, you can’t afford not to — we explain here.

Optimize your processes, then automate them

It’s easy to get excited by all the buzz around AI-powered automation. But before you jump on the (arguably fantastic) bandwagon, remember that automation isn’t a magic cure-all. If you try to automate poor processes and bad data, you’ll still have poor processes and bad data even after you implement automation.

Identify the pain points in your current deductions process and determine what data you need for decision making. Having this information at hand helps you and your automation partner create an automation strategy that truly streamlines your deductions activities while delivering the data and analytics necessary for ongoing improvement.

Face the future with confidence with Esker

Looking for an expert in AI-driven automation that can help you transform your deductions? Esker is a 40-year veteran of the software and finance industries. We love helping businesses untangle tedious processes, enhance their customer service, and uncover cost savings using the power of AI and automation.

Our Deductions Management solution uses Al-driven data capture and automated workflow capabilities to keep your team on top of trade and non-trade deductions. It’s part of our comprehensive Order-to-Cash suite that automates everything from initial customer inquiries all the way through to collections.

You can learn more by checking out our webinar: Improving CX Through AI-Powered Claims & Deductions.