Most manufacturers are eventually faced with the question of whether to offer a Swell or Spoils Allowance. These terms are synonymous, both referring to an amount paid as an off-invoice (OI). The OI is intended to cover the damaged product. There are a few retailers in the US that require vendors to provide them with a spoils allowance as a requirement of selling product in their stores. However, most retailers and distributors offer it merely as an option. There are a few key considerations before making this decision for your business. Spoils allowances are going to be a set percentage OI. That means every invoice that you issue will provide the discount, regardless of if that product has any actual damage. Because this is a set percentage, it is easy to accrue for this expense since it’s predictable and directly dependent on sales; however, it is critical that you fully read and understand all the limitations of the specific spoils allowance policy that you are considering. Most do not cover short-dated product, so any product that does not meet the minimum required shelf life will still be subject to a deduction on top of the spoils allowance. Another key limitation is that many spoils allowances include a clause that states that if true spoils deductions are greater than the total of the allowance provided within the specified timeframe, the retailer or distributor will deduct the difference. If this is the case, you pay the downside—there is no upside for you. If true spoils deductions are less than the allowance give, you do not get that amount repaid.

 

Fall Creek recommends closely reading and fully understanding all limitations of the policy you are considering before agreeing to it. Don’t be afraid to ask your representative for clarification prior to signing up. If the policy allows the manufacturer or distributor to deduct for any amount in excess of the allowance, we recommend not signing up for it. You are better off agreeing to the actual spoils deductions, rather than giving an allowance, then potentially having deductions taken on top of that allowance. If you have any questions regarding the policy you are considering, please reach out. We would be happy to help you choose the best option for your company.