Good Deduction Management Starts With a Good Deduction Policy.
A written corporate Accounts Receivable Deduction Policy is needed to avoid problems with customers that take deductions without providing proof of their validity and sinking your profits as a result. The policy must be clear, and consistent policy enforcement is important.
Depending on the type of deduction, customer error rates can be as high as 10%. Consequently, they must be properly researched, charged back to the customer if invalid, and followed through to successful recovery of the monies rightfully owed to you. Managing high volumes of deductions also requires automated deduction software that reconciles and identifies invalid A/R deductions. Timeliness of processing is key to solving them before they age out and end up as write-offs.
The policy needs to be communicated to customers, which then serves as your notice as to what proof you require to review deductions. Your policy document needs to be signed by your President or CFO, clearly referenced on your website, and sent to your customers.
- Have your chief sales or finance executive sign it (better yet, your CEO).
- Send a copy by email to the buyer(s), accounts payable controller, and the highest-level executives you deal with.
- Follow with an electronic copy for a digital signature as a “confirmation” of receipt of your policy and not as a legal agreement, which would probably never get signed.
- Always enforce your policies consistently.
The template below should be customized for your company and industry as step #1 in developing your own corporate deduction management policy. It puts you in a stronger position when a customer takes advantage of your policies. In addition, with retailers implementing new charges and penalties during difficult economic times, trade promotions, shortages, returns, and other allowances must be closely audited before approval.
Note. “Post Audit” deductions, (with invalid rates sometimes as high as 50%) are a very important deduction category, are covered in a separate Post Audit Deduction policy statement to be shared not just with the customer, but also with the outside post-auditors.
These guidelines are meant to help our customers better understand our policies and process for deduction review, documentation, and acceptance procedures for trade promotions or other charges
Trade Promotion Deductions
We honor deductions for trade performance allowances submitted within the following rules:
- The deduction is for a previously approved promotion.
- You must supply backup documents detailing the specific reasons for each deduction, which is subject to our review and approval.
- Before taking a deduction, please make sure it complies with the terms of the deal sheet.
- Your backup includes a signed deal sheet and specific proof of performance such as the ad copy, billback/scan back data, etc.
Compliance, Pricing, and Allowance Deductions Misc.
Deductions for purchase order compliance, pricing errors, allowances, etc., will be accepted if you meet all backup documentation requirements, including invoice and purchase order copies, detailing the specific reason(s) for each deduction.
Shipping and Transportation Chargebacks
Subject to our review, we will accept deductions for the quantity, quality, or transportation claims if you meet the following requirements, providing proof for such charge.
- Delivery-window violations backed up with the PO specifications and signed POD.
- Backup, including invoice copies and documents detailing each claim’s specific reason.
- For shortage or damage, provide a detailed itemization (SKUs) of the items you claim are short or damaged.
- For shipping-related claims, a signed bill of lading (BOL) or proof of delivery (POD) noting the discrepancy on the bill of lading or freight bill while the delivery driver is still present.
- If the shipment is a TL or container, the signed POD must show the seal number and its condition upon receipt (intact at the time of delivery).
- Time Limitations. You must submit all shipping claims within sixty (60) days of delivery (or non-delivery) to allow time for the investigation and the filing of any carrier claims.
NOTE. If the shipping terms are FOB-Origin or your carrier is used, it is YOUR responsibility to pay us in full and then file a claim for shortage, damage, or loss with the transportation carrier, as you have the title and responsibility from the point of pickup. These deductions will not be allowed.
Returns are subject to verification and chargeback, as follows.
- Compliance with the Returned Merchandise Authorizations (RMA).
- Correct SKU, NDC, Lot #s, Dates, etc.
- Correct pricing (if not a specific invoice return, the lowest price billed).
- Quantities, for which our hand count will be conclusive.
- Other vendors’ products will be destroyed, not sent back, and not credited
- We will reconcile your debit memo to our returns credit memo, and, if your deduction was excessive, we shall bill you back for any returns variances, including SKU, quantity, and price.
These Deduction Types That Are Not Allowed and will be Charged Back
- Cash discounts on invoices not paid within terms.
- “Anticipation” for invoices paid before the due date.
- Promotional deductions outside the deal-parameter dates.
- Customer warehouse-related processing or expense fees.
- Returns without, or above the amount of, an approved RMA.
- Duplicate deductions, such as a deduction for an off-invoice allowance.
- Nuisance charges include deduction processing fees, detention, bad pallets, etc.
- Coupon redemption charges outside our separate Coupon Redemption policies.
- OS&D Claims for FOB-Origin shipments.
Our Process to Review Deductions
- If you have not provided backup documentation within 90 days, the deduction will be considered invalid, will be billed back.
- Generally, 90 days are required for us to complete our investigation.
- If, after receiving your documentation, our investigation determines that the deduction is invalid, we will bill it back with an appropriate explanation.
- Once a deduction is deemed invalid, we will advise in writing that repayment is due within 30 days of the date of our chargeback letter.
- Unpaid chargebacks, just as invoices, will be considered in our decisions for credit and product allocation.
Please e-sign as confirmation that you have received these business terms. Thank you.
Your Company’s Executive
Remember, that by partnering with Carixa, you can collect 100% of the revenue rightfully owed to you, eliminate problem reconciliations and write-offs of invalid deductions, and be in the best shape when it’s time for an audit. Clean receivables, accurate billing accounts, and properly matched credits and debits help keep the financial accounts on track for any sized business.
If you want to learn more about automating your AR, contact our experts today.