Deduction problems are notoriously self-inflicted wounds, often caused by correctible mistakes or oversights allowed to go uncorrected within the company. Those wounds can fester dangerously when the deductions remain concealed within an opaque accounting system. Here's one company's prescription for a cure.
When Kelly Ceransky became Director of Accounts Receivable and Credit at Haier America in March 2011 there were several years of chargebacks cluttering the books. That was no surprise. It was the major problem she'd been recruited to solve, having developed chargeback management expertise during a 19-year career in the Liz Claiborne credit department.
Chargebacks are a major problem for both companies. Haier, selling appliances and digital products--like Liz Claiborne, selling attire--routinely provides their retailer customers with promotional items which are then deducted from invoices rather than being discounted upfront. The process of approving, or declining to approve, this often-enormous number of deductions can be formidable.
It was a particularly formidable process at Haier because of the limitations of the SAP data processing system in use when she arrived. "SAP a great system," she acknowledges, "but it's not the easiest to get usable data out of. It was fine for the entire organization but not necessarily for Credit and AR."
She found that there was a lot of information that meant absolutely nothing. There weren't enough chargeback codes and those they had often were not being used correctly. There were lots of unapplied credits as the staff struggled to match credits with returns. Just getting the data into a usable fashion and identifying what was on the books was part of the problem. "There wasn't even enough data in the system to tell us how to fix the problem," she recalls.
So her first initiative was to introduce Haier to Global Vision's Workflow AR, which she had been working with at Liz Claiborne. "There was quite a learning curve," she says. "The information I was used to getting wasn't readily available. I couldn't just run a report to see who called which customer today. I couldn't run a report and have all of my chargebacks in one place and find out what the status was."
Priority: Enter Status Codes
That became one of her major priorities. On every open item she required her AR people to enter a status code. "You create the list of status codes that are relevant to your business." she explains. "The code could mean: 'Left a message with the customer.' 'It's a disputed deduction.' 'We're being paid back.' Whatever. So not only do I know what it is, I know what they've done. And there's also a responsibility code so if they're waiting for approval I see exactly who they are waiting approval from. It provides one comprehensive report on everything chargeback-related and invoice-related. There's no mystery."
Her predecessors at Haier had none of this with the unexpanded SAP system. They were doing a lot of work in Excel, but there was really no place to enter information but a white box. "With Workflow AR you go into Comments. You see the date of the comment, who put it in and what the comment is. And there are two different types of comment. You can put a comment on the account, or you can put in a comment on each individual item if that's the way you choose to work."
When she began last March, there were several years of chargebacks on the books, so they had to focus on the oldest ones while keeping the current ones current. Otherwise the current becomes old before too long. Each month it was a rolling goal, focusing on a certain period from the past, plus the prior month's chargebacks. And then they'd roll it forward the next month.
"We've been pretty successful," she says. "Now we have just a very small portion of chargebacks that I'll call disputed--that we don't feel are valid or that we feel we can recover--from 2011. And we're current within 60 days for 2012 chargebacks." When she got there, the chargebacks on the books--which went back to 2008--amounted to "many millions."
Getting the Right People
Along with data processing, the entire staff had to be revamped. "Haier invested in bringing in the right people because they want their chargebacks to be current, and they think it's very important for customer relationships that we're not chasing people down a year after the deductions," she says. "In the past year our reputation has been boosted by the fact that we're communicating regularly with our customers verbally on the phone and through email correspondence about their chargebacks. They have a better comfort level with us. When you know what you're doing and you know what's going on with the accounts, they look at you a little differently."
Better Communication Is Key
"Previously we weren't sending statements to customers showing where they stood with us, and they had no idea we hadn't resolved these problems until an order went on hold because Credit saw that something was past due. It could be a frustrating experience."
Just as important, a partnership has developed between the AR team and the sales managers so every single deduction that comes in--except for returns--is reported in the sales managers' weekly reports. The report details what customers have deducted and what's been cleared. That didn't happen before. It was a real eye opener for the sales managers because many of them had no idea what their customers were deducting.
Better Information = Better Leverage
It's allowed Haier to dispute a lot of vendor-compliance related issues. "We're going back to the table and renegotiate better deals," Ceransky explains. "The salesman goes in with a vendor packet and just wants the sale. They were signing them without really looking at how much it was going to cost to do business with this retailer. But now that they're able to see these chargebacks very clearly, and in the right periods (not finding out a year later), it puts them in a better bargaining position when they go back to the retailer.
"For, example, retailers' vendor agreements may include exorbitant charges for late shipments. Now, because the sales managers are getting these reports, they realize it's costing them thousands of dollars a month in late shipping charges--something they never knew before.
The way it used to work was that vendor compliance deductions would go to the vendor compliance team in the warehouse. They'd say 'Yup, we did ship that late. The claim is valid because it's in their agreement and we signed the agreement.' But nobody was telling the sales managers this was happening."
"We just had to know what the problems were," Ceransky explains. "Full visibility was the issue. When I run a query out of Workflow, I can tell them who handles it, what the last action was, who we're waiting for approval from and who we spoke to at the customer. It enables me to give some real information, not just a number and a deduction that means nothing."
Every Friday Ceransky has to prepare a report on the top 20 accounts to send to headquarters in China. At first she had to run an Excel spreadsheet and put it out in a shared directory. And everybody had to go in and type their comments.
Now, she brings in the comments already entered on the system. "I can see the date of the last comments and exactly what's going on," she says. "I can prepare in one little pivot table, 'We have X dollars past due, but I have payment promises on this amount.' 'I have disputes on this.' 'I've provided POD on this.' I'm able to give China an update is a matter of minutes where it used to take most of a day to put it together.
"China loves it. We're an overseas trading company and Haier has trading companies all over the world. They're using us as a Beta test. We've been having discussions since DSO has gone down significantly since we've become fully live and implemented.
"It can't all be attributed to new software, but just getting our arms wrapped around the data and who we want to call and how we want to approach it has really helped us get our DSO down. China has implied that it is successful here and they may want it in their other overseas trading companies."
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