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A New Way to Think About Deduction Management

What is deduction management? Deduction management (also referred to as claims management) is the oversight of the method of payment that manufacturers use where they will charge the customer the full amount of the bill, and the customer can deduct, or short pay, what is owed back to them. Companies have entire departments that are charged with processing, verifying, and clearing deductions.

When consumer products companies assess their deduction management teams, they typically focus on two main objectives 1) clearing disputes as quickly as possible and 2) collecting on chargebacks. While these two priorities are still important, there are other ways organizations should start to think about their deductions.

1. Deductions cost money to process.

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. Spending resource time on deductions that are under $100 often costs a company more than the deduction is actually worth. To add fuel to the fire, most retail customers won’t accept chargebacks under a certain threshold. While it is important to monitor customer behavior, consider reassessing automatic threshold levels and prioritization lists to make sure your team is focusing on the right deductions at the right time.

2. Deductions provide data to you about your customers.

Customers provide claim reasons and backup documentation for most short pays they charge. This information provides details about whether a deduction is budgeted, the result of a compliance issue, or unauthorized. By aligning teams, cleaning data, and establishing benchmarks, companies can better assess customer profitability and internal operational opportunities, in the form of logistic issues, pricing errors, etc.

3. Cross functional alignment is key for a successful deductions department.

Effective deduction departments are tightly ingrained within consumer goods 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 charge back disputes, and can also push out cross functional analysis based on high dollar or volume reasons for deductions.

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

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*Sources: Credit Research Foundation Benchmarking Report, 2012

Tags: Trade Promotion