Having been exposed to the world of claims and deductions in Order-to-Cash over the last 8 years, the complications and nuances involved with companies that supply to large retailers still never fails to astound me.

Every time I get engrossed with companies that operate in this industry, it reminds me of a childhood TV show. For those of a certain age, you might remember a show that originally started in the US called Supermarket Sweep. For those in the UK, it aired on ITV with the ever enthusiastic Dale Winton.

The aim of the game was to fill your supermarket trolley with as many goods as you could within a certain time frame. If you picked up certain highlighted items, then bonuses were awarded, but if you damaged some of the goods with the trolley dash, penalties were applied.

The similarities between this and Order-to-Cash Claims and Deductions are comically similar. They tend to fall into a number of categories;

• Trade Promotional Pricing – (Dales’ Sales Manager Specials)
  • Legitimate deductions based on Sales and Marketing promotions
  • Agreed discounts based on product placement with retailers
  • Marketing & Rebate promotions contractually agreed in advance

• Trade Deductions – (The Penalties)
  • Preventable deductions
  • Damaged or defective supplied goods
  • Pricing discrepancies between the agreed contract and the invoice
  • Incorrectly supplied products

Those who play the game the quickest and in the most efficient way by minimising mistakes and taking advantages of the promotions will win.

The Impact
Whilst the complexities exist, they are a necessity for doing business with retailers with strong brand exposure to the market and the public.

However, if the process is managed inefficiently and ineffectually, the cost to margins can be high, unexpected and therefore painful.

The cost to research and resolve an unauthorised deduction according to an ARO2C white paper¹ is $200-$300 (£150-£250) per deduction.

Even worse, with average margin in space being around 10%, 3.7% is lost to preventable and erroneous customer deductions.

In addition CRF* reports that deductions can account for 10% of sales revenue.

How can Esker Help?
Esker’s fully integrated Order-to-Cash solution ensures that deductions can be managed and controlled in a much more effective way. It does this by;

• Centralising deduction information and automating from all receiving channels such as:
  • Emails and attachments
  • Electronic Data Interchange (EDI)
  • Customer portal
• Automatically extracting key information from any document type
  • PDF, Jpeg, Png, Tiff, Word, Excel, body of an email, and more
  • Auto extraction of data using Esker’s Synergy Neural Network of document types
  • Auto recognition of claims type based on key work recognition
• Facilitate Cross Department Collaboration
  • Customisable workflow to ensure the right document is triaged to the right department
  • Approval limits and authorisation by line level information and ability to append supporting documents such as proof of deliveries
  • Internal conversations with teams to aid resolution times
• Visibility and Root Cause Analysis of Claims
  • Visibility by department, customer and business unit on progress of deductions against resolution targets
  • Configurable Dashboards detailing the average processing time per customer, authorised vs. disputed claim amounts, claim amount by claim type, open claims by customer, and many more.

In addition, the Esker Claims and Deductions solution integrates with our Cash Application solution to raise claims quoted on remittances, and cross check any claims already in progress or processed. This further automates and reduces effort and cost from the process.

The Outcomes
With cost of living increasing and the subsequent impact on revenues and margins, reducing the impact of unauthorised deductions has a direct impact on the balance sheet.
Esker’s Claims and Deductions solution will impact margin erosion, cost of sales and DSO whilst at the same time improving customer service, ensuring a positive-sum-growth for customers and suppliers alike.

¹ Automating the Management of Customer Deductions – An Esker/ARO2C Network White paper

Matt Tipper

Matt Tipper is Partner Manager for Esker UK. He has been part of the Esker family since 2020.

Read more insights from Matt Tipper

So…. What’s your opening move?

Don’t spend all your time preparing to play. Research by Paystream Advisors shows that companies who use traditional accounting methods such as Excel, or basic ERP functionality in AR do the following;

• Spend 15% of their time prioritising their activities,
• Spend 15% of their time gathering information to make collections
• Spend 20% of their time actually communicating with their customers about payment

In contrast, companies using automated AR solutions do the following;

• Need to spend only as little as 6% of their time prioritising their activities
• Only 6% of their time gathering information for collections calls
• Benefit from spending 62% of their time communicating with their customers about payment.

See all your moves ahead

The receivables ledger is a goldmine of un-tapped opportunity. With the right platform in place, the insight it can give around your customers and their performance will enable businesses to make better decisions. For example;

• External risk and credit limit advice data can often be out of date
• The insight gathered from using a collections platform gives you real-time information on customer payment performance and credit worthiness
• This in turn can enable you to increase credit to customers backed by your own performance statistics, not an external provider
• This enables a closer relationship between sales and credit as well as results in revenue increases to existing customers

Boston Consulting’s research shows that;
‘Companies that deploy Order-to-Cash platforms and re-engineer the process boost revenues by 1% to 3% a year.

Be A Credit Grandmaster!

AR Collections platforms allow credit managers to do what they do best – give them the data to make better decisions and increase revenues whilst managing risk.
Multi-ERP environments are becoming more common with M&A activities. This has resulted in siloed data and increased risk through over exposure to the same customer in multiple systems. Automation platforms help solve this issue by;

• Becoming a single source of truth for AR data – fed by multiple ERP systems
• Allowing processes to be standardised across different systems, regions, shared service centres and GBS function
• Ensuring that debtor performance and risk are combined in the same platform and not in disparate systems
• Allowing credit insurance compliance by providing a full audit trial on dunning activities
• Reducing attrition through removal of mundane manual tasks and increased focus on value added activities

The Results

The results from AR automation speak for themselves.

• 15-30% savings in cost
• 30% reduction in Days Sales Outstanding
• Increase in customer satisfaction
• Up to 90% reduction in un-applied cash

Checkmate To Manual AR Processing

At a time where cash is more vital than ever for organisations, AR automation can unlock cash tied up in receivables, create a stronger balance sheet and make better decisions in un-certain times.

Matt Tipper

Matt Tipper is Partner Manager for Esker UK. He has been part of the Esker family since 2020.

Read more insights from Matt Tipper

This is especially true in finance. The qualities and skills of a Credit Controller, Credit Risk Analyst or Accounts Payable Specialist, require just as much ‘front office’ skills and knowledge as someone in sales or customer service…yet they are deemed to work in the ‘back office’?

Some aspect of this is down to outdated views but some, I believe, is down to the technology that is used – or lack of it. If you’re a senior manager/director in finance then why invest in a function that you feel is a direct impact your margin? The reason why is exactly that, by not valuing it or investing in it, it’s being left behind in a myriad of mundane tasks. A recent study of B2B midmarket companies found that 53% still use spreadsheets to manage their accounts receivables.

This inevitably results in;

• Manual errors
• No traceability or accountability
• Low employee and team morale
• Fewer value-add conversations or activities

In fact, the lack of technology is severely impacting the balance sheet more than finance leaders realise. According to PWC, $1.5 trillion dollars of working capital is tied up in un-collected receivables, enough to boost capital investment by over 50%. Add to that, the impact of a marketing leading receivables platform has on DSO reduction, bad debt provision and un-applied cash. The downstream effect of automation in these areas is not only on financial performance, it also makes its way to the end customer, ensuring a better service and experience.

So whether it’s front or back office, let’s think about it in more simple terms. Invest in your people, giving them the tools they need to do their job and more purpose and a feeling of contributing to success. The positive impact on your financial performance will be inevitable and invaluable.

Matt Tipper

Matt Tipper is Partner Manager for Esker UK. He has been part of the Esker family since 2020.

Read more insights from Matt Tipper