The legitimacy of most of the deductions most customers make is not usually an issue. The issue is the time and effort you have to spend researching these deductions. Decorative Home Accents (Abbeville, SC) recently launched a major effort both to reduce this research burden and to identify the origins of deduction-causing errors.

The first step was to set some goals. These were

• to understand customer requirements, and then be sure that the company is capable of meeting those requirements.

• to create an effective internal tracking system with good documentation showing that the company either complied or failed to comply with customer requirements.

• to identify chronic internal problems that lead to deductions, and find ways to improve the processes that cause the problems.

"We began by dividing deductions into two types," reports Scott Senatore, CCE, vice president of Credit Services. These are:

1. Sales/Marketing-Based Deductions. "The first challenge here was to figure out which deductions have been preapproved, since the sales department didn't always catalog or log in their sales programs in a way that allowed us to have easy access to the information," says Senatore. The department began working with the divisional sales vice presidents to make sure that they cataloged all of their sales programs on-line. "By having this information on-line, we can clear related deductions from our A/R immediately so that they do not cause large DSO's."

   Senatore also plans to begin meeting with the sales department on a monthly basis to discuss deductions. Meetings will focus on:

   
   
   • Any outstanding deductions that have not been resolved, and the reasons they have not been resolved.

   • Any deductions the sales department has denied and then making sure they have begun initiating the collection process with the customers.

2. Operational-Based Deductions. One of the company's divisions is automated, so it was relatively easy to determine whether a given deduction was correct or incorrect. But the other division operated manually; that is where reconciliation problems occurred.

   "We began by creating a set of 'package categories' for the operations people so that when we send deduction-related requests for information, they understand the nature of the deductions," says Senatore. The department also forwarded the same categories to customers so that they could use them when claiming deductions.

   As with the sales department, Senatore plans to begin meeting monthly with the operations department. While discussions will cover how to improve research to identify deduction causes, the emphasis will be in preventing future deductions by identifying

   
   
   • where the deductions were created,

   • the causes of the deductions, and

   • ways to reduce the deductions in the future.

Customer Communication
While internal communication and improvements are of paramount importance to managing deductions, Senatore also sees the benefits of working more closely with customers. "We work with customer accounts payable people, but primarily we work with their vendor relations managers," he says. "They're the ones who can help the most in resolving deduction problems."

Senatore also plans to begin working more closely with buyers. "They communicate frequently with our salespeople, which is another reason we want to begin working more closely with our salespeople," he adds.

Technology
The last area of focus is on the benefits of technology. "Customers use the latest technology to identify and claim deductions," he explains. "We also need to use the latest technology to be able to respond quickly, appropriately and accurately. When customers realize that we have technology in place to address deduction claims, I think things will improve substantially."

Editor's Note: The above article originally appeared in the Credit & Collection Manager's Letter, a newsletter purchased by Credit Today in 2006. This article originally appeared prior to 2000.

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