Deduction Types and Strategies
April 5, 2016
Defined by us back in the 1980s, but still accurate today, deductions can be categorized as follows:
It’s easy to feel the victim and blame your customer on using deductions as a profit line item, but it needs to be acknowledged that the root of most deductions goes back to internal supplier failures of one sort or another, and industry practices.
Non-compliant supplier shipments cost their retail customers hundreds of millions of dollars in unnecessary processing and rework. It is common today for retailers to rate their suppliers using “Supplier Scorecards” which measure order fulfillment percentages, EDI compliance, on time delivery, packaging, proper labeling, etc.
Looking at it from another angle, more deductions means a worse supplier score, which will ultimately have an effect on the relationship. You can request a copy of your scorecard, and see what your customer’s perception is, and get some actionable take-aways in the process.
A Simple Action Plan
The entire revenue cycle needs be examined from order entry to cash collection to find the delays, error prone areas, extra hand-offs and paper shuffling. This will free up both cash flow and resources.
Internally, you start with auditing and benchmarking your company’s operation. Issues will often be found not where you expect, but also where you inspect. You can start by analyzing deduction experiences by type, customer, amount, etc., to pinpoint trends and identify problems.
Taking a few steps to focus on this problem can pay big dividends for your company. You can be a hero by reducing deductions and increasing profits.