I'm not sure if my subject is an accurate description of what we're looking for, so I'd like to provide a bit more information...
We are in the process of revamping our workflow system to ensure deductions are routed to the correct individuals for research/approval related specifically to vendor compliance charges and ensure the correct area has visibility. We already have extensive processes in place for co-op, pricing, etc.
The question has come up of what "research" the Accounts Receivable team should provide, besides the customer's claim copy, before it gets routed to the warehouse for example. And the second question is what charges should go to what department. Some examples of compliance charges we are looking to route include Late Penalties, Fill Rate Violations, as well as obvious ones like ASN (will be routed to IT), and Shortages (AR will pull pods and dispute initially, but once it's denied what processes do you have internally with the warehouses such as cycle counts, QC, etc.?).
Does anyone have a matrix they would be willing to share and/or suggestions on the best way to manage all the different types of compliance as we are getting pushed back because of time constraints? Most areas (customer service, logistics, IT) want to push off the research to AR and we are wondering how to fairly distribute this workload and of course, how can we research what is happening in other areas of the company.
Thank you.
Rosa Ferraris | A/R, Credit & Collections Manager, DeLonghi America Inc.
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It may not answer your questions, but I take the responsibility in Credit/AR to provide the appropriate department (usually Customer Service) the details on any debits or deductions taken by our customers for any reason. I feel they need this detail as to what the deduction was for to be able to do their research. We also have a minimum threshold that any deductions or overages (equal to or less than) a set figure, are automatically written off without any further research on anyone's part. This partially comes from a study I did years ago at another company on deductions that found that 95% of customer deductions were legitimate - so why have people spending time and effort, unless above a certain threshold (that threshold was $50 where I worked before), on issues that were generally being approved anyway?
Hope that gives you a little guidance although I know it didn't answer all your questions.
Chris Finch, Director – Credit, Sumitomo Electric Lightwave
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Thanks, Chris. I'm glad you reminded me about writing off under a certain threshold. Do you provide anything besides the claim copy to client services? For example, on late shipments, we are being asked to pull the PO copy and the Bill of Lading, then compare those to what's in the system to determine if it needs to go to the warehouse for further review.
Rosa Ferraris
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We provide whatever level of detail the customer provides us. Often, they just take debit and I have to go back and request the detail to support it but that's what I provide. Customer Service is the custodian of the PO's and BOL's as well as tracking and providing those when needed back to the customer.
Chris Finch
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This is a topic I want to weigh in on. Rosa's question is a great one. I'd like to dig deeper into the deduction/dispute management issue. In my experience, having managed through the quagmire of deduction management, there are several things you should consider:
1. If you are not already doing it, insist that you sign off on all Vendor Agreements. Review them for all compliance issues. Determine if you have the processes in place to meet the requirements. If there are issues that you question or are not sustainable, push back at the outset. Identify, develop or improve processes needed to deal with compliance issues, particularly when multiple departments are involved. For existing Vendor Agreements if you have not reviewed them, get a copy.
2. I agree that any documentation available to your department should be forwarded along with the customer claim. Remove as many potential delays as possible in getting the issue resolved.
3. Create the workflows mentioned in the ListServ responses so far. Code each deduction/dispute by type so you can create a workflow to route them to the correct department/individual. Set up a target timeframe for a response to either issue a credit, or collect it. If the timeframe passes, add an escalation workflow to the next level of management. Create a list of all pending deductions/disputes including The type of issue, who the resolution is assigned to, the dollar value, the date it was identified, and the target date for completion.
4. If there are repetitive issues determine why and work on correcting the process. It could be pricing errors, early or late shipments, or concealed shortages for example. Ask why, and who needs to be involved to fix the issue. You may find it is a customer issue. For example, if there are concealed shortage claims by a big box store, track them by the storefront. I have found specific storefronts where the inventory has legs. Your customer will appreciate the feedback. They are as interested in theft by employees and lax controls as you are.
5. I also agree that a small dollar threshold for write-offs makes business sense. With that said, track and report those showing the total dollar amount of write-offs by type each quarter. Look at upward trends. You may find customer manipulation of your policies. When you add all the small-dollar write-offs the value is significant.
Rosa, I know this more than you asked for and that some of this may already be in place. I added my comments because managing deductions/disputes is a complex issue that if not handled, costs companies a ton in potential unwarranted write-offs and administrative expenses.
Anyone -- if you either disagree based on your experience or have additional suggestions, please post your comments.
Robert Shultz, Chairman Highako Advisory Council/Credit Today Editorial Staff
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Hi Bob,
You could not have done a better job of spelling out how to deal with Vendor Compliance. It is CRITICAL that Credit/AR be involved or at least knowledgeable of the details of ALL vendor compliance requirements for every customer agreed to by your company!
The only thing I would add is, after dealing with retailers for 20+ years, I have noticed that many retailers now require that any disputed deductions be addressed within a certain number of days after the deduction is made (This is normally noted in the agreements as well!) it will be deemed as a valid deduction so addressing or disputing these items promptly is critical.
Kathy Brown, Credit Manager, Funai Corporation, Inc.
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Thanks, Kathy and Bob. We are involved in all contract reviews, negotiating review timelines, etc. I like the ‘track shortages by location', I had forgotten about that one! It's a new year and we're looking to shake things up a bit.
The biggest thing we're dealing with is revamping the internal (workflow) review of the chargeback once it is deducted and what department it goes to and what research should they be doing. We're open to any other ideas?
Rosa Ferraris
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