Through a special arrangement, presented here for discussion is a summary of a current article from the monthly e-zine, CPGmatters. This article was contributed by TradeInsight.
For CPG manufacturers, invoice deductions and charge-backs are part of doing business with retailers. These deductions can include everything from temporary price reductions (TPR) and slotting allowances to damaged cases or short shipments.
The best game plan for minimizing deductions revolves around establishing crystal clear policies and ensuring all parties are in agreement with each of the terms and conditions. While this sounds obvious, growing manufacturers and smaller retailers are often guilty of verbal commitments and promising to "deal with the details later." To protect yourself and your trade spend dollars, consider these three tips:
- Don't just sign the retailer's new vendor packet. Take the time to read it thoroughly and be sure you understand each and every policy, procedure and punishment. Neglecting this crucial first step will eventually come back to haunt you.
- Keep brokers in the loop. For manufacturers with a broker in the fold, make sure the broker is clear on what he can and cannot commit to on your behalf. And don't forget to inform your broker if any terms change. If it's the sales rep's responsibility to sign off on specific items rather than the broker, it is imperative that everyone knows and agrees to the details.
- Doing business with a handshake sounds great in theory, but… all commitments must be documented. Comprehensive documentation will result in faster payment and help manufacturers contest invalid or unexpected deductions.
While most deductions are valid, nearly 40 percent are invalid. No retailer/manufacturer relationship is perfect, so having a process in place to catch and minimize these surprise deductions will keep your deduction balance in check. Before signing that vendor packet, a manufacturer should clarify what is negotiable and make sure it is in writing. This effort will provide manufacturers with a clear understanding of the leverage available to them when discussing unexpected or invalid deductions.
While documentation is absolutely key, a trade promotion management tool does offer manufacturers another line of defense when dealing with deductions. An intuitive system can automate much of the settlement process by consolidating and sorting deduction requests, storing documentation and running reports to better contest improper deductions. In the end, adopting a technology solution can help growing manufacturers manage trade promotions in a smarter, more efficient way.
The best advice for minimizing deductions is this: Do your homework. The more you understand and the more policies you have in place will only improve your company's settlement process.