Vol. 127 - NO. 39

Blog Startup CPG

SINCE 2019

HOW TO OPTIMIZE YOUR
DEDUCTIONS MANAGEMENT PROCESS

Dash Bibhudatta is the GM of Deductions at Inmar. Prior to joining Inmar, Dash worked for McKinsey & Company as Senior Expert/Associate Partner and was the global leader of the quote-to-cash transformation service line. He’s held leadership positions at Microsoft, Covansys (now Computer Associates), and Siemens.

Today’s environment is driving businesses to adopt back-office automation. As inflation intensifies margin pressure, and consumers become more price-sensitive, CPGs need to decide between increasing revenue or reducing costs. Additionally, faster B2B payments are influencing AR/AP innovation — and many executives plan to prioritize AR automation.

DEDUCTIONS CAN BE A BURDEN ON CPGS

A deduction occurs when a retailer or distributor doesn’t pay the total amount of an invoice. They’re identified by claim codes on the remittance provided with payment. For CPGs, invoice deductions are part of doing business with retailers. There are three types of deductions:

  • Pre-authorized (70-80%) – Typically budgeted. Consider the “cost of doing business”. These include agreed discounts, advertising, rebates, etc.
  • Unauthorized (10-25%) – Not pre-planned & difficult to detect. Need good business practices and timely follow-up to recover. These include returns, spoilages, shortages, recall fees, etc.
  • Preventable (10-20%) – Usually results from compliance violations. Prevented by improving business practices. These include early/late delivery, labeling, freight, etc.
DEDUCTIONS ARE THE SECOND-LARGEST EXPENSE AFTER COGS

Deductions can significantly impact profit margins — they equate to 15-20% of brand revenue — yet many CPGs struggle to efficiently and effectively manage their process. This difficulty stems from various challenges:

  • Deductions are extremely effort intensive — data can come from 30-100 retailers on multiple portals or via multiple emails
  • Deductions tend to be a lack of focus for stakeholders — in a recent study by Inmar Intelligence, 25% of respondents said coordinating deduction response is a challenge
OVERCOME DEDUCTIONS CHALLENGES WITH AUTOMATION

Deductions management is often messy and inefficient — but it doesn’t have to be! Leveraging intelligent documentation and machine learning saves valuable time and resources by:

Reducing administrative work and improving efficiency. When deductions are first received, the primary challenge is coding them. With automation, the machine extracts the claim data, understands patterns, and defines the nurture of the deduction. AR teams can set and define their own codification, so the system understands how to code a backup document and how your AR team labels.

Protecting margin erosion. Detect patterns and anomalies to improve deduction recoverability.

Prioritizing high-value activities. Focus on vital few through AI-based forecasting method. AR teams can spend over 50% of their time on extraction alone. AI and automation give back that time so AR teams can focus on becoming guardians of value, rather than deductions inspectors.

INTRODUCING DEDUCTIONSLINK™

Inmar Intelligence’s DeductionsLink helps reduce invalid deductions and simplifies workflows, all in a seamless and convenient SaaS platform.

DeductionsLink increases profit margins by improving visibility and recovery rates of invalid deductions, and by helping prevent deductions from happening in the first place.

At the same time, DeductionsLink decreases administrative work by up to 80% with an easy-to-use portal and role-based workflows that enable seamless collaboration between Sales, Brokers, Finance, and Operations — and provides access to insights.

DeductionsLink automates data extraction, coding, and managing disputes and approvals. It also helps AR analysts focus on vital few through AI-based forecasting methods, which allows them to prioritize deductions based on recovery probability.

How DeductionsLink can impact your business:
  • Increase profit margins by 5-15%
  • Increase recovery rate to 85-95% of invalid deductions
  • Save deductions analysts 50-80% of time spent on administrative tasks
  • Reduce preventable deductions by 10-20%
  • One single source of information for 100% of deduction data and dispute backup

For more information, or to get started with DeductionsLink, contact solutions@inmar.com

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