What is meant by deduction management?

What is meant by deduction management?

Business organisation distribute their product in such a manner to their customer who in turn can either sell them or can utilise for their own need. After selling the products, manufacturers charge their customers with the invoiced amount. In many cases, it was observed that the customers always delay in payment. Thus, this amount withheld with the customers is termed as deductions. The numbers are increasing. Deductions are growing exponentially and this could further increase than the sales growth of many companies. Time and resources spent on resolving deductions could be spending on other activities as they are being spent on the deduction process. Certain deductions may create a huge impact in your customer relationship- customers may be deducing because companies reimbursement process is not so fast and this endangers the relationship with the customer.

Managing such risks impose all deductions will be very essential during the time of risk evaluation. all these small factors can highly impact the profitability of the company. Effective deduction management is possible with the right management, the right process and right tools, the company takes control on deduction from large to small, and benefit from cutting necessary time, freeing up tied up cash and collecting invalid deductions. This will obviously have a positive impact on both the top line and the bottom line and the best part is it can be achieved easily.

Pricing error, which may or may not is related to trade promotion, create multiple discrepancies to the customer for what they are charged and what they are supposed to charge. They give reason to customers to think for deductions. in one investigation, it was found that the problems of a pricing error, there is only the difference of 60 per cent. Such errors can only be calculated for pricing, ordering and invoicing and these are simply human error. Finding a solution to all these discrepancies is an attainable goal. To find the best solution, a company must properly manage their people, process and tools. This need to be done properly and precisely.

To tackle the deduction problem properly, a company must find a way to manage the entire process -from promotional to sales. There are few ideas from front end to back end integration which hardly any company apply to manage these deductions. These ideas are important because they help to accelerate the resolution of valid deductions and preventing or correcting the invalid deductions. Traditional barriers to cross-departmental communication and information access may prevent the company from managing the deduction part. To find the solution, the company may consider every link connected to the company:

  • If an excessive promotion and product pricing are causes multiple deductions then the company need to consider their sales and marketing teams to weigh the cost and benefits of such structures. Otherwise, it will create havoc by discriminating customer of one region from the customer of another region. This will also result in diversion due to which the products will be diverted to the one region and deduction would be gained from both regions.
  • Sales and marketing need better communication so that they much be aware of what is going inside their mind. The information related to deduction must be known so that invoices can be error-free and discounts can be tackle efficiently before the advances are being claimed.
  • Forecasting team need to communicate back to the supply chain that the products manufactured are quite efficient so that the company can sell without occurring any loss. Vice versa inventory need to be clearly visible to the sales and marketing teams so that they can bring better coordination at the time of promotion and selling of products. This will not jeopardise the relation with the customers. Customer disapproval and customer dissatisfaction cause deductions.
  • Any information related to customer requirement that the customer service department may introduce during the time of selling, shipping, packaging and picking procedures.
  • The credit department must be able to access all the information related to deductions.
  • Pricing and order management needs to communicate multiple discount offer or deduction to the finance, sales, marketing, operation and supply chain so that they can pictures such occurs and protect the company from being caught in the situation that is the least important to reimburse its customers. This knowledge is very crucial when it comes to determining the validity of the deductions.
  • When an account deduction office identifies such deduction, it needs to communicate such information to the right person and the right employee can be identified at the time to consider ownership of researches and resolution of such deductions. The resolution, in return, requires its employee to communicate back to account deduction counterpart.
  • Collecting agents must be aware of invoices with deduction problems, and if any team member is already in touch with the customer, then they should not interfere in their work otherwise customer will not be happy to get offers from two different people within a company for the same problem.
  • Finance, sales ad marketing need to be able to access all the information related to the customer in conducting meaningful customer profitability analysis. This must include various deductions and cost to resolve such queries.
  • An employee assigned especially for deduction data and to discover current marketing trends need to consider the analysis not just to advise management but to different groups within a company.

Selecting the right person for problem-solving

Aligning the right people with the process is important managing deduction because assigning ownership is the first step to solve the problem because to resolve deductions, one has to gain expertise in all the fields and departmental works of a company. Assigning ownership to the right person is a first and very crucial step in solving the problem. Without proper management, the deduction will be lied without being any investigation on them. While assigning ownership company must consider several functions such as customer attributes, locations, products, amount deduced, reason and validity of the deductions.

Since deduction can be attributed to many business activities such as sales and marketing, pricing, order management, customer service, shipping, credit, accounting, collections etc, it is necessary to build a proper team of people that can work together and educate another employee of a company. Depending on the deductions scenarios, various skills need to be present within the deduction control and monitoring team.

Depending upon the deduction scenario, different skills and tools must be present within the deduction control team to monitor every deduction. For example- to address an issue related to customer buyers, a deduction team member who is strong in customer relationship may be a better person as compared to a person who has good expertise in credit or collection analysis; to address issues with customers payables and deduction personally. However, a deduction team member who is from or looking into the matters of account deduction is the right person for such matter.