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Merry Go Round

The majority of deductions are the result of errors made by the creditor company.  Some of the more typical errors include mistakes in pricing, picking, packing and shipping.  Many credit pros are on a merry-go-round in which they clear a hundred or more deductions a month only to find a hundred new deductions open the following month.

Do you want to get off this ride?  The best way to do so is to find and fix the mistakes that result in customer deductions being taken.  Of course, the credit department does not directly control things like pricing and packing errors, but there is something you can do.  You can document the number and the dollar value and the types of deductions outstanding.  Doing so is one way to gain support from senior management for fixing the problems that result in customer deductions.

If you have never tried this before consider starting slowly.  For example, you could document the number of pricing deductions taken in a given month and the number open at the end of the month.   Calculate the dollar value of pricing deductions taken, and the dollar value of deductions open at month end.  You might also want information about the number and total dollar value of pricing deductions open for more tha 90 days.  Armed with this information, you should be able to make a more compelling case to senior management that some significant effort is needed to address and resolve the root cause of pricing deductions.  And if you want, report on whether the customer was correct or wrong in taking a pricing deduction, the easiest way to document this is to calculate the number and dollar value of pricing credits issued per month and publishing that information to senior management.

Michael Dennis, MBA, CBF, LCM

Well, that’s my opinion… What is yours?

Michael Dennis’ Covering Credit Commentary. Michael’s website is  www.coveringcredit.com

The opinions presented are those of the author.  The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors.  Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.

2 Responses to “The Deductions Merry Go Round – Michael Dennis, CBF”

  1. Margaret Spencer says:

    This was complicated but after I read it twice I understood your point… and I think you have offered some useful insights.

    Thank you

  2. E says:

    Hi Michael,

    In the Middle East there is an expression “the faithful does not get bitten twice.” In your context it should mean that a company that was bitten by one deduction, mistake, defect…should not be bitten again by the same deduction or mistake. The find and fix is an imperative to a company seeking healthier bottom-line or better and efficient operations. The credit department though might not be involved directly with the department originating the mistake can nevertheless document in a matrix format all the credit memos issued by reason code and forward a copy to all the departments involved in the error(s). If a company keeps making the same mistakes over and over again, it is not only inefficient but also ineffective and it will erode its profitability.

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