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
