February 1, 2013
CPGmatters: How Can Marketers Minimize Invoice Deductions?
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.
BrainTrust
Recent Discussions
Discussion Questions
What are the most effective steps that suppliers can take to minimize invoice deductions and charge-backs?
Poll
As a national sales and business development specialist, and as one that is the conduit between manufactures and a national broker sales force, I can tell you that it’s imperative that manufacturers, and their master broker, and field sales reps, have working relationships at every retail chain that goes much deeper and wider than just the buyer or category manager.
In terms of managing deductions, it helps to have a working relationship and rapport with the actual “deductors” at each retail chain. I would say that more than 50% of the time these problems can be resolved in the manufacturers favor. But it’s hard work, it requires a few e-mails, maybe a few phone calls, and definitely some personal introductions while you are in the building.
The top 5% of all master brokers, field sales brokers, and other CPG professionals make it a part of his or her business to know people inside the building, and to understand how everything happens for a reason.
The article gets it half right. Establishing the proper policies up front is critical. But the biggest issue we observe is the actual acknowledgement and adherence to those policies by account managers and manufacturer management in general.
We have very seldom seen the terms of sale printed on the manufacturers invoice or trade promotion policies actually agree with those of the retailer. And no one wants to quibble over the differences because that means “no sale.” “Let the lawyers do it! That’s what their for!” Of course, the retailer’s accounting runs by the retailer’s rules—and when push comes to shove, the customer is always right. (Not that manufacturers don’t push back—but the retailer already has your product and they still have their money. Possession is 10/10ths of the law in this case.)
Perhaps the biggest offender is the account manager or broker who makes the “side deal” or “account specific exception” under the age old rules of sales.
- No one ever got fired for overspending if they hit their quota—but lot’s of folks get fired for missing quota, and
- It is easier to ask forgiveness than permission
In this case, the “closed loop trade funds management system” really does help. But beware what you wish for. The same system that creates air-tight control also strangles flexibility. Make sure your system has a “way out” when the boss says “make the quarter—whatever it takes!”
P.S. And “amen” to David Biernbaum’s comments!
Nothing is faster than a speeding bullet except a retailer’s fast draw with invoice deductions. They have been mutually institutionalized in the system, fairly or otherwise, just as have the pay raises and perks that Congressional officials regularly vote for themselves.
What’s the cure for this test of wills? First, as the supplier, do your homework and then put courage to test. The former is your moral compass, the latter is your Achilles Heel. Which is the stronger depends on you.
I side with David B. and Ben B. on this issue. Deductions are often a result of not doing the “pre-work” necessary on the manufacturers’ side, turning a blind eye because there is misalignment between expectations and how people are evaluated/incented/compensated, and the fact that retailers can use the “float” of possessing and using the monies as they need/prefer until (or even IF) they need to square up.
To stop shipping is one “threat”—but clearly, comes with some rather negative consequences. The preferred way to go about it is to actually build trust, deepen relationships, and agree to the “rules” up front. Much of the contractual requirements are created because there is little trust, high fear, and it gets in the way of doing business. While understandable in many instances—it is also avoidable if the efforts are put into working together vs. against each other.
Fascinating how few comments appear in this article compared to the other discussion topics today. I guess this IS a hairy monster for which few want to put their true opinions into print.
Invoice deductions are just one component of trade promotion “optimization,” as some of the comments herein refer to. With all the technology available to help manage this aspect and others of trade promotions, it still does, at least for now, require the human element to succeed in this business. The field sales force for the CPG company needs to have as consistent a set of guidelines as possible. There is still too much variance in approach to different retailers, and for that matter, too much latitude in contract compliance.
Some steps that can help would be to 1) Plan more effective promotions based on KPIs 2) Create fact-based volume forecasting with supply chain visibility in advance of purchase orders, 3) Ensure optimal timing and sequencing of promotions. These can help minimize invoice deductions, along with building stronger CPG-Retailer relationships.
I think the biggest challenge here is the communication between the vendors and retailers. Though many vendors have trade promotion systems in place and many retailers have a vendor portal, these parties seldom talk to each other.
Many cost changes or promotions are negotiated over email or phone and are not always updated in systems. Data discrepancy leads to disputes. Both vendors and retailers need to ensure that this integration of data happens and there is one source of truth for both the parties.
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As a national sales and business development specialist, and as one that is the conduit between manufactures and a national broker sales force, I can tell you that it’s imperative that manufacturers, and their master broker, and field sales reps, have working relationships at every retail chain that goes much deeper and wider than just the buyer or category manager.
In terms of managing deductions, it helps to have a working relationship and rapport with the actual “deductors” at each retail chain. I would say that more than 50% of the time these problems can be resolved in the manufacturers favor. But it’s hard work, it requires a few e-mails, maybe a few phone calls, and definitely some personal introductions while you are in the building.
The top 5% of all master brokers, field sales brokers, and other CPG professionals make it a part of his or her business to know people inside the building, and to understand how everything happens for a reason.
The article gets it half right. Establishing the proper policies up front is critical. But the biggest issue we observe is the actual acknowledgement and adherence to those policies by account managers and manufacturer management in general.
We have very seldom seen the terms of sale printed on the manufacturers invoice or trade promotion policies actually agree with those of the retailer. And no one wants to quibble over the differences because that means “no sale.” “Let the lawyers do it! That’s what their for!” Of course, the retailer’s accounting runs by the retailer’s rules—and when push comes to shove, the customer is always right. (Not that manufacturers don’t push back—but the retailer already has your product and they still have their money. Possession is 10/10ths of the law in this case.)
Perhaps the biggest offender is the account manager or broker who makes the “side deal” or “account specific exception” under the age old rules of sales.
In this case, the “closed loop trade funds management system” really does help. But beware what you wish for. The same system that creates air-tight control also strangles flexibility. Make sure your system has a “way out” when the boss says “make the quarter—whatever it takes!”
P.S. And “amen” to David Biernbaum’s comments!
Nothing is faster than a speeding bullet except a retailer’s fast draw with invoice deductions. They have been mutually institutionalized in the system, fairly or otherwise, just as have the pay raises and perks that Congressional officials regularly vote for themselves.
What’s the cure for this test of wills? First, as the supplier, do your homework and then put courage to test. The former is your moral compass, the latter is your Achilles Heel. Which is the stronger depends on you.
I side with David B. and Ben B. on this issue. Deductions are often a result of not doing the “pre-work” necessary on the manufacturers’ side, turning a blind eye because there is misalignment between expectations and how people are evaluated/incented/compensated, and the fact that retailers can use the “float” of possessing and using the monies as they need/prefer until (or even IF) they need to square up.
To stop shipping is one “threat”—but clearly, comes with some rather negative consequences. The preferred way to go about it is to actually build trust, deepen relationships, and agree to the “rules” up front. Much of the contractual requirements are created because there is little trust, high fear, and it gets in the way of doing business. While understandable in many instances—it is also avoidable if the efforts are put into working together vs. against each other.
Fascinating how few comments appear in this article compared to the other discussion topics today. I guess this IS a hairy monster for which few want to put their true opinions into print.
Invoice deductions are just one component of trade promotion “optimization,” as some of the comments herein refer to. With all the technology available to help manage this aspect and others of trade promotions, it still does, at least for now, require the human element to succeed in this business. The field sales force for the CPG company needs to have as consistent a set of guidelines as possible. There is still too much variance in approach to different retailers, and for that matter, too much latitude in contract compliance.
Some steps that can help would be to 1) Plan more effective promotions based on KPIs 2) Create fact-based volume forecasting with supply chain visibility in advance of purchase orders, 3) Ensure optimal timing and sequencing of promotions. These can help minimize invoice deductions, along with building stronger CPG-Retailer relationships.
I think the biggest challenge here is the communication between the vendors and retailers. Though many vendors have trade promotion systems in place and many retailers have a vendor portal, these parties seldom talk to each other.
Many cost changes or promotions are negotiated over email or phone and are not always updated in systems. Data discrepancy leads to disputes. Both vendors and retailers need to ensure that this integration of data happens and there is one source of truth for both the parties.