What Is Deduction Management?

Deductions occur when a customer does not pay their invoice in full, and the solution can be complicated, involving many departments. The reasons for deductions include trade promotion deals, cash discounts, shipping dates, billing errors, shortages, pricing differences, and shipping damage. Whatever the reason, deduction management is an essential function, as deductions may constitute 5-20% of your receivables. The job includes reconciling, validating, and recouping erroneous deductions, resolving disputes quickly and correctly, and following through with the customer to get your money back. Because of high volumes of deductions and the complex, time-consuming research process required, you need an automated, streamlined deduction management software that starts with cash application reason coding, or you will lose significant revenue with little hope of recovering it.

Deductions, Chargebacks and Chronic Profit Leakage

Through our deduction management solutions, we automate and manage deduction management operations to streamline and accelerate customer deduction resolution. We reconcile and collect customer deductions taken in error, and we identify root causes to reduce preventable deductions to eliminate chronic "profit leakage", for long-term bottom-line impact. Our best-practices deductions management solutions begin with root cause analysis and research.

  • Many if not most, deductions have errors. Post Audit deductions, for example, often have a 50%+ error rate.
  • Trade Promotion Management deals and discounts, especially in CPG, can represent 80% of the deduction dollars and require careful validation to avoid giving your profits away without the benefit of any sales lift.
  • Most returns deductions have quantity and price errors, which we reconcile to the SKU and NDC level to identify and collect the overcharges.
  • Vendor compliance deductions cost you profits year after year, such as the On Time - In Full (OTIF) penalties from Walmart and others.
  • The small-dollar “below threshold” deductions that you write off automatically add up to large repetitive, systemic losses.
  • Cash discounts are usually deducted even if not earned and rarely followed up, encouraging more late payments.
  • Administrative staffing costs are high relative to the cash return from deductions.

Smyyth Deduction Management Solutions


There are several ways to work with us to keep customer deductions under control, save administrative costs, and prevent profit leakage by preventing and recovering invalid or excessive claims. Carixa deduction management software has large-scale deduction processing capability, including AI-driven workflow, write-off controls, management rules, dashboards, metrics, root cause reporting, etc. Carixa deduction dispute software always keeps you in the loop, with management dashboards down to detail.

  • Outsource the deduction function from point of cash application through recovery or credit.
  • Outsource deductions at days 30, 60, or 90 to keep your staff focused on the current activity.
  • Outsource the problem categories: for example trade promotions, pricing, or cash discounts.
  • Outsource a one-time backlog cleanup, to recoup maximum cash while cleaning up your books, even write-offs.
  • Audit old deductions to recapture lost profits.
  • As your "post-audit" defense, if your customers engage A/P auditors to charge you back.


Benefits of Smyyth Deduction Services


  • Identify the root causes of preventable deductions
  • Increase dollar recoveries dramatically
  • Reverse credits to the P&L
  • Accelerate deduction processing time-frames
  • Re-deploy staff to high ROI activities
  • Clean up A/R backlogs
  • Guaranteed performance with success-contingent fees


Major Deduction Categories


There are hundreds of customer deduction classes,  but the majority fall into these four general groupings. We handle them all.

  • Planned include valid trade promotions, distributor volume rebates, ship and debit, markdowns, and RMA returns.
  • Preventable include errors in vendor compliance, shipping, billing, EDI,  split shipments, and hard-to-understand trade promotions.
  • Customer Errors, include receiving, returns,  pricing, SKU, or quantity errors, inapplicable pricing or trade promotions, unearned discounts, and excessive compliance penalties.
  • Post-Audit charges include inapplicable trade deals and discounts, double deductions for credits already taken, incorrect freight or discount terms, and unauthorized data sharing between auditors.

To learn more about our deductions automation process, our account reconciliation process, or topics like post-audit claims, call us at 1-201-714-4500 or use our contact page.