Understanding Deduction Management with Vividly

As a brand, it's crucial to stay on top of your financials. That includes being aware of deductions from your sales revenue, especially when deductions can significantly impact your profit margins.

In this blog post, we'll dive into what deductions are, why they happen, and why brands should care about managing them effectively.

What are trade deductions?

Trade promotion deductions are reductions in the payment that a brand receives from its wholesaler or retailer.

They are usually taken from gross invoice payments for a variety of reasons, including promotion advertising, rebates, slotting, returns, damaged goods, and price adjustments.

Deduction management involves tracking, reconciling, and clearing deductions to make sure that they are accurate and justified.

What are the types of deductions?

Among deduction types, trade deductions typically comprise the largest segment of deductions for many CPG companies. In most cases, trade deductions constitute more than 50% of all the deductions received.

However, there are several types of deductions, including but not limited to:

1. Returns & Damages: Brands often have to accept returns of damaged or defective goods during shipping or storage.
2. Advertising: Circulars and flyers are distributed through distributors as well as presented to consumers within grocery stores, to help drive purchase volume.
3. Rebates: Marketing promotes brand awareness through coupon distribution.
4. Slotting: When first entering a new retail store, testing out a new region, or introducing a new product, CPG companies are often required to provide the retail store with free products in order to test-run goods based on consumer buying behavior.
5. Price adjustments: Wholesalers and retailers may negotiate price adjustments based on market conditions or other factors.

Why should brands care about deduction management?

The administration of deductions is an essential step in a company’s overall trade promotion management process.

Properly analyzing and validating trade deductions, also known as chargebacks, helps put dollars back on the company’s bottom line and works to enhance the entire supply chain.

Streamlining deduction management workflows helps CPG companies go after bigger wins and achieve better results within their organization.

Deduction management is important for several reasons, including:

1. Financial impact: Deductions can significantly impact a brand's bottom line, so it's essential to manage them effectively.
2. Better relationships with wholesalers and retailers: By tracking and reconciling deductions, brands can maintain better relationships with their partners and avoid misunderstandings or disputes.
3. Improved cash flow: Effective deduction management can improve a brand's cash flow, which is essential for running a successful business.
4. Increased transparency: Brands can increase transparency in their financials by tracking and addressing deductions, which can help them make better decisions for the future.
5. Better forecasting: When a company is able to properly manage its trade deduction process, it can more easily identify which of its promotions, products, or stores is giving them the best ROI. This information can then be used to create more accurate forecasts.

While deductions are a constant in every supplier’s accounting process, deduction management is a time-consuming process that requires a lot of attention to detail and communication between all parties involved. It’s tedious — but it doesn’t have to be.

What role does automation play in the deduction management process?

Automation plays a crucial role in helping companies focus on their most high-value activities. If a company’s accounts receivable team is spending too much time wrangling Excel spreadsheets, they’re unlikely to have the time or resources to innovate, follow up, or think strategically about trade spend.

Automating the deduction management process enables teams to be more agile and spend more time on non-trade deductions, like forecasting or optimizing trade promotions, that may require more attention.

How Vividly can help

Vividly helps CPG companies automate their end-to-end deduction management process with our #1-rated trade promotion management (TPM) software.

In addition to our software, Vividly also offers a full suite of white-glove deduction-related services, including:

1. Backup retrieval: We’ll pull backup from all retailers and distributors, saving you hours of work every week.
2. Deduction resolution: With our Deduction Resolution service, our team will reconcile your invoices to ensure all your deductions are correctly matched to promotion line items. We’ll even uncover and flag any invalid deductions for you to easily review.

3. Deduction disputes: Once we’ve uncovered invalid deductions, we can help by filing those on your behalf with your retailers and distributors. We often find that many deductions are simply cleared by the analyst teams because they are overwhelmed with so many tasks. This can equate to thousands of dollars and more over time.

In addition, you can use Vividly to easily plan a year’s worth of trade promotions, improve cash flow with real-time forecasting, access to in-depth analytics with easy-to-read dashboards, and integrate your ERP systems to populate baseline volume and revenue projections at the direct and indirect levels.

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