Strategies for Preventing and Resolving Chargebacks and Deductions
Many distributors and vendors treat chargebacks and deductions (or at least a portion of them) as the cost of doing business. But it doesn’t have to be this way! It is possible to both prevent the likelihood of their occurrences, as well as streamline and automate the process of resolving them.
Editor's Note: This blog post was originally posted in 2018 and the frustration with chargebacks and deductions is more relevant as ever. Click here to learn more.
Attain Consulting Group is a deduction management advisory firm dedicated to helping companies improve profitability by reducing and controlling chargebacks and deductions. Founded by Jessica Butler, Attain Consulting prides itself in providing clients with practical, experience-based solutions to address their deduction management and compliance challenges to help companies “Take Control of Deductions.” In their comprehensive 2018 Deduction Survey, data from over 200 companies was gathered to help guide evaluation of your own company's deduction management processes.
A new question added to the survey that we thought was particularly interesting asking companies how well they are able to comply with the mandated timeframes for their customers 'dispute window." 26% reported that despite efforts to prioritize, they are often outside of the customers' dispute window, and of that 26%, nearly half either the customer does not accept or companies simply write off.
Chart Source: Attain Consulting Group
More amazing to us, that across all respondents, non trade-related deductions represent 1/4 to 1/2% of sales ... ouch!
Says Attain, the biggest challenges in processing deductions and chargebacks are internal challenges. Deductions are, frankly, a company-wide issue.
Chart Source: Attain Consulting Group
There are two main tactics that help take the frustration and sting out of chargebacks and deductions: 1. Prevent them from happening in the first place, and 2. when they do occur, clear them up as quickly as possible.
Attain asked respondents to share their strategies for preventing and resolving deductions so that others may consider this in their own improvement efforts. The top 5 actions reported by all respondents are illustrated below:
Chargeback and Deduction Prevention Steps
- Improved order accuracy
- Made Sales / other departments accountable
- Involved other departments in customer on-boarding and/or deal/promotion
- Better communicated policies to customers
- Performed root-cause analysis
- Improved cross-functional teams
Chargeback and Deduction Resolution Steps
- Focused on timely review and follow up
- Made Sales / other departments accountable
- Improved cross-functional teams
- Better communicated policies to customers
- Improved deduction reporting
A company’s internal communication and cooperation between departments are instrumental in the prevention and resolution of chargebacks and deductions. When Attain asked companies their biggest internal challenge when trying to control deductions, 41% of respondents reported "cross-departmental cooperation." "Lack of resources" and "access to information" followed as the second most popular answers, both receiving 21% of responses.
Attain found that companies surveyed frequently stated that their existing ERP systems and/or A/R packages do not provide the functionality necessary to effectively manage deductions. Whether it is the ability to track the status of a deduction throughout the process, edit reason codes, or automatically pull customer claim information or signed PODs from portals, Attain found the traditional systems of many companies fall short.
An excellent starting point in assessing your company’s current deduction performance is to review Attain’s survey results. The survey includes statistics on deduction metrics, internal processes, best practices, and more, and is a fantastic source to benchmark information on your chargebacks and deductions. For a full copy of the detailed survey, simply request it HERE.
Implementing a 3rd party technology solution such as iNymbus can automate the manual activities associated with deduction management, by disputing and resolving chargebacks and deductions for you. In one example, a book distributor successfully cut their chargeback and deduction processing costs by 80%!
