The Deduction Management Process ─ A Beginner Guide

If you are someone who deals with deductions on a daily basis, you must be aware of the fact that the deduction management process has become very complex. Deduction management is a critical process for businesses of all sizes.

However, many companies are guilty of using ineffective processes. Effectively managing deductions can lead to significant cost savings and improved cash flow.

What is Deduction Management?

Deduction management refers to the process of identifying, tracking, and resolving deductions.

Retailers may issue deductions for a variety of reasons. The most common reasons are shortages, pricing claims, and Compliance Chargebacks. The deduction amount may reach up to 20% of an invoice, resulting in thousands of dollars in revenue loss.

At its core, the deduction management process involves several key steps, including:

1. Deduction Identification

This is the most important step in the entire process. It begins with monitoring incoming payments or invoice discrepancies to identify any deductions.

2. Prioritizing Importance

All deductions are not created equal. Some may be a few cents while others can large sums of money. The larger amount gets more priority while resolving the issue.

3. Research

The next step is conducting a root cause analysis to identify why and how the deduction happened. It starts with checking the original invoice as it contains detailed info about the sale. Other supporting documents need to be collected and organized as well.

They are as follows:

• Deduction document
• Purchase order
• Bill of lading
• Proof of delivery
• Other supporting documents

4. Determining Validity

After getting all the relevant data, the decision-maker can determine the validity of the client’s deduction. If there are issues with the order quantities or product quality, the client has a valid claim for short-paying. However, if the deduction was due to a payment error, it is not considered valid.

5. Submit a Dispute

The next step is to dispute the claim on the retailer’s portal, where the business uploads the claims and any supporting documentation. It’s necessary to create a separate supporting document for each dispute.

6. Reporting

Deduction management reporting is crucial. The reports show the number of deductions, who made them, and whether they were valid or invalid. This data can help identify problem areas and frequent deduction sources.

Using this information, the business can make better delivery and invoicing decisions to reduce future deductions.

Best Practices for Effective Deduction Management

Establish Clear Policies and Procedures:

Develop a clear set of policies and procedures that outline the company’s approach to deduction management, including roles, responsibilities, and escalation processes.

Prioritize Deduction Resolution

Implement a system to prioritize the resolution of deductions based on factors such as the dollar amount, retailer, and the potential impact on cash flow.

Deduction Documentation

Maintain detailed records of all deductions, including the reason, amount, and supporting documentation. This will facilitate the validation and resolution process.

Deduction Monitoring and Alerts

Establish a system to track and monitor incoming deductions closely. This allows the business to stay informed and up-to-date on the deduction landscape, enabling timely responses.

iNymbus ─ Automated Deductions Management Software

iNymbus leverages cloud-based robotic process automation (RPA) to optimize the entire deduction claims processing workflow. iNymbus automatically extracts and organizes all claim documentation from vendor portals, ensuring complete and accurate claim submissions. It specializes in Amazon deductions and Walmart deduction, including deductions from over 25 other retailers.

• Faster dispute resolution ─ iNymbus speeds up the dispute resolution process by up to 30 times compared to manual methods.
• Reduced administrative burden ─ iNymbus automates tasks like claim identification, validation, and filing, freeing up personnel to focus on higher-value work.
• Centralized deduction management ─ A unified platform provides a centralized view of deductions from all retailers, improving visibility and management.
• Data-driven decision-making ─ Advanced data analysis capabilities provide insightful KPIs, charts, and reports to uncover patterns and trends.
• Scalability and flexibility ─ The cloud-based, RPA-powered solution can scale to businesses of any size and adapt to their specific needs.

Conclusion

Mastering the deduction management process is crucial for optimizing revenue, improving cash flow, and reducing administrative burdens. Establishing clear policies, prioritizing deduction resolution, maintaining detailed documentation, and leveraging technology may help improve workflow and maximize revenue recovery.

However, deduction management software like iNymbus provides better ROI by reducing the time and effort required to recover revenue while minimizing errors and inefficiencies.