If you think about it, deductions should increase efficiency by cutting out several steps in the process to pay a customer when the situation calls for it. Customers short pay invoices, effectively paying themselves, so you as the vendor don’t have to.
The downside is when you don’t expect the deduction, or the amount of the deduction differs from what you expected. When there are large amounts of deductions and poor communication about what the deductions are for, it can lead to revenue leakage.
Reconciling an unexpected deduction becomes even more difficult when:
So how do you avoid these dubious customer deductions? Here are 6 simple ways:
You should be able to quickly validate the amounts, whether they are fixed amounts or based off a calculation from a variety of measure such as rates, dates or percentages.
Ensure that the activity being paid for is captured at the same level in the system that it is being paid to the customer. Activity needs to be described correctly so you know that you paid for an advertisement of a certain type or that you require the customer to provide a specific amount of proof of performance.
TIP: Find a solution that allows for any type of referencing while preserving internal controls.
TIP: Find a solution that comes with pre-set search routine that can be configured to meet the needs of specific customers or types of activity.
By automating discounts and having the ability to update invoices on the go, you will be able to reduce price discrepancies and the deductions claimed by your customers because of them. Seems simple enough, but if you’re still manually managing your pricing in spreadsheets, errors are easily made.
With the ability to prepare for deductions in advance, you are able to reconcile quickly and efficiently. Meaning unauthorized deductions are easily identified and true deductions are written off quickly with less administration effort.
TIP: Overworked accounts receivable departments can push reconciliation to the bottom of the pile, making it hard to prove or disprove the validity of deductions. With an automated solution for pricing and reconciliation, your pricing is accurate and deductions are easy to reconcile.