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Deductions Intro
Deductions are specific to the Consumer Packaged Goods (CPG) industry. Showing as negative amounts against open invoices, they are negative line items on the check a vendor or manufacturer receives from a retailer or distributor. You might not know why they’re there, or what they’re for, and that’s where Fall Creek comes in.
Retailers are the typical grocery stores that we all go to. Some examples include Albertsons, City Market, Bashas, and New Seasons. Distributors exist to service smaller retailers, also known as independents. Small retailers typically don’t have a large amount of warehouse space to store full pallets of individual products. Many manufacturers require that orders are placed in full pallet quantities. Because of this lack of storage space, distributors will instead purchase the full pallets and store them in large warehouses across the US and Canada. They will then allow smaller retailers to purchase a single case of a product off the pallet.
Deductions can occur for a variety of reasons. The most common categories of deductions are sales discounts, spoils, quantity discrepancies, advertising, marketing allowances, and cash discounts. The sales discounts category covers deductions related to promotions: coupons, scans, temporary price reductions, or even buy-one-get-one-free (BOGO) deals. Spoils deductions occur anytime a product has to be disposed of, either because it is damaged, has gone bad, or is nearing expiry. Quantity discrepancies refer to any situation where the distributor or retailer receives more or less of a product than what was shipped. Advertising deductions occur anytime a manufacturer chooses to spend money on advertising to promote their products.
Marketing allowances are sometimes required by distributors and retailers; this allows them to market the manufacturer’s products. Cash discounts (also known as terms discounts or early pay discounts) are amounts taken off invoices for paying within a certain number of days. A manufacturer of rice products, for example, might ship an order of wild rice to United Natural Foods (UNFI). You then invoice them $10,000.00. A few weeks later, you receive a check for that invoice, but the total they paid is only $6,000.00. You look at the check coversheet. It shows $4,000.00 in deductions with codes next to the negative lines. You aren’t sure what these deductions are for, much less if they are accurate. We will take that check coversheet, enter those deductions into a tracker, and request backup for each deduction. Once we receive that backup, it will be uploaded to a share folder where you always have access to it. Next, we go through the backup and add “validation notes” to the tracker. Essentially, these notes are questions for you or your team. The answers will allow us to know if these deductions are accurate. If they are, we will notate that on the tracker, and If they are not accurate, we will work with your team to compile the necessary supporting documents. Once we have the documents we need to support our case, we will submit a dispute for this deduction. Our team will then follow up on that dispute until it is resolved. Sometimes once a dispute is submitted it can get lost in the shuffle with the retailers and distributors, so our team will put a persistent process in place that ensures none of the disputes are forgotten.
We have helped a wide range of businesses for years and it’s never too early to reach out to us (even if you haven’t even shipped your first order yet). We offer complimentary introductory meetings where we can give you more details on our service offerings and answer any questions you might have. Being proactive with deductions management is one of the keys to success. Our team can help you put a process in place right from the start that ensures we have all supporting documents; this is in case we need to iron out a dispute down the road. We’re always planning ahead, and look forward to working with you!