Collections and Deductions

The key to efficiency, automation.

Automating the collections and deductions process is a sure way to improve efficiency, do more with less staff, and reduce days sales outstanding (DSO).

Collections & Deductions – An Overview

9ci’s Web-based Dispute & Collection System (DCS) establishes and monitors your collection strategy with a streamlined, automated cash collection process — providing an accurate picture of open receivables and resolving thousands of outstanding invoices. DCS ensures that all essential customer information is in one place, on one screen, so you will always know your total exposure while on the phone with a customer. The system allows you to target, tailor, and automate your efforts to improve your collection effectiveness and time to resolution. DCS automatically records the history of all activity and notes. It also manages customer payment deductions regardless of whether they result from compliance, returns, or promotional spending, and tracks the history of deduction resolution, including customer correspondence, internal investigation, collection/resolution, and reporting.

DCS allows A/R staff to spend more time collecting valid cash instead of dealing with paper agings and the never-ending dispute resolution process, with the proven ability to:

  • Lower DSO and increase cash flow
  • Create and manage a customized collection strategy workflow
  • Automate repetitive responsibilities & manual tasks associated with the collection process
  • Reduce customer compliance deductions by over 70%
  • Increase invalid deduction collections by over 300%
  • Establish rules and parameters in the work queue to enforce standard procedures and direct day-to-day operations
  • Prioritize faxing and calling based on customer types to guide collectors through the next appropriate course of action
  • Proactively manage receivables
  • Determine collector performance and view DSO by collector, business unit and more
  • Manage incoming deductions to reduce unallowable & compliance deductions
  • Provide an accurate picture of open deductions and the strategy for resolving thousands of unauthorized and outstanding deductions
  • Analyze deduction patterns/trends by customer, reason code, and deductions as a percentage of sales
  • Change reason codes on the fly
  • Accurately code deductions to the appropriate GL expense
  • Speed deduction resolution/reduce the cost of handling and processing
  • Spot patterns in real-time and resolve issues immediately
  • Automatically reconcile short pays resulting from scan-downs (instant point of sale rebates) or advertising allowances
  • Clearly and accurately track and match deductions to promotions and trade funds (when used in conjunction with our Trade Promotions Management System)

No matter what industry you are in, if you have sent an invoice, you are open to price related disputes. There are various factors that can cause price related issues, especially in companies where the pricing structure is very complex:

  • Invalid or blanket purchase orders
  • Invoices sent out twice accidentally
  • Invoices sent for the wrong pricing amount, or for the “right” amount but accompanying a short-shipped order
  • Sales deals given to the customer, but not reflected on the invoice
  • Compliance issues (in applicable industries), such as failure to send an advance shipping notice (ASN) or putting the packing list in the wrong place on the shipping crate
  • Discount terms. Optimally, discount terms should be tracked and inserted at the time of invoice generation time to create that elusive “perfect invoice.”
  • Freight. It is not unusual for freight charges to mistakenly appear on an invoice in a case where the customer has actually shipped the goods via their own carrier. Freight gets on the invoice anyway, and the result is a short pay.

Deductions: The Cost of Doing Business?

Most deductions and disputes that occupy the bulk of collectors’ time arise from short pays that are the result of charges that should not have been on the invoice in the first place. It is not unusual for as many as 40 percent of all outgoing invoices to be either flat-out wrong or inconsistent with what the customer expects, which has a negative effect on a company’s measured DSO. To prevent this, DCS can intercept the invoice before it is even generated and identify issues like pricing, or whether the order is tax exempt or freight exempt. If the invoice has already gone out, the system automatically knows how to deal with the problem intelligently when the short pay comes in, so it doesn’t become a cash application issue. If the short pay is the result of a freight discrepancy, for example, it is automatically identified as freight and written off with an audit trail behind it, before falling into a collectors hands and wasting valuable time.

Advertising allowances are another area that often results in unpreventable short pays that are not visible to A/R. These are a special case — impossible to put on an invoice since they are not related to any specific order — but DCS can show that the pending dispute or deduction is going to come through. Special “co-op” advertising allowances, where customers accrue a certain percentage of everything they spend and the funds are stored in “co-op buckets,” require the kind of solid visibility that only DCS can provide. The system will know the amount accrued at any point in time for any customer, marry any short pay against the co-op allowance, and either submit it for approval or automatically clear the remittance from the customer’s co-op allowance. Thus – once again — the short pay is never allowed to become a collection issue.

“Before [DCS], we spent more time gathering information, and now we spend more time analyzing it. I know you hear that over and over again with all the ERP marketing, but it’s absolutely true in our case. Today I can take a look at my deductions and reason codes, and instead of just sticking my finger in the hole where we’re bleeding, I can ask ‘Why do we have this many deductions?’ and go after the root cause of the problem.”– Michael Pettyjohn, Director, Corporate Credit and Collections and Customer Service, Rand McNally

Case study:

sc_randmcnally2