1. Prioritize.
2. Learn more about the Customer.
3. Cross-functional collaboration.

Cosmetics companies have two main goals when looking at their deduction management programs: collecting on chargebacks and clearing disputes. While these two priorities are still important, there are other ways organizations should start to think about their deductions. Applying these three perspectives to your existing deduction programs may help you focus on the right activities to help improve your bottom-line.

1. Prioritize your time on larger chargebacks

According to Credit Research Foundation’s Benchmarking Report, on average, a single deduction costs a company approximately $97* to process, research, validate, dispute and clear. If you find your team spending resource time on deductions that are under $100, consider that it may be costing your company more than the deduction is actually worth. To add fuel to the fire, the lack of written contracts or Customer Marketing Agreements often makes collecting even more expensive and most retail customers won’t accept chargebacks under a certain threshold. It’s not to say that collective, small deductions add-up and are not important to recover, but consider the cost-benefit as part of your prioritization efforts and reassess automatic threshold levels to make sure your team is focusing on the right deductions at the right time.

2. Seek to learn more about your customer

Customers provide claim reasons and backup documentation for most short pays they charge. Basic blocking and tackling should include identifying if deductions are trade or non-trade related, but this information also provides details about whether a deduction is budgeted, the result of a compliance issue, unauthorized, or part of product returns. By aligning teams, cleaning data, and establishing benchmarks, companies can better assess customer profitability and internal operational opportunities like supply chain process improvements, logistic issues, pricing errors, etc.

3. Advance cross-functional collaboration

Effective deduction departments are tightly rooted within cosmetics companies with close touch points to sales, finance, logistics, accounts payable, and customer service teams. This enables two-way correspondence where deductions teams can quickly get the approvals needed to write off or collect on chargebacks, and can also push out cross-functional analysis based on high dollar or volume reasons for deductions. As an example, consider integrating volume-based deductions with POS data, enabling your sales team to incentivize and reward based on compliance or as input in pricing and discount strategies.

When reviewing your deduction management program, it’s important to focus on clearing disputes and collecting on chargebacks, but look beyond the necessary elements of the process and use deduction management programs to find additional business value to improve your bottom-line.

*Sources: Credit Research Foundation Benchmarking Report, 2012

If you found this information interesting, subscribe to our blog to receive the latest insights:

Contributions from Nicole and Mary Spooner