Collection Agencies And Deductions And Charge Backs – 2 Of 5

Advice For
In-House
Debt Collection

Col­lec­tion Agen­cies And Deduc­tions And Charge Backs – 2 Of 5

By Dean Kaplan

With more and more retail­ers using deduc­tions as a way to max­i­mize pur­chas­ing power, hir­ing col­lec­tion agen­cies may be one way to help con­trol this prob­lem. The big­ger the retailer, the more deduc­tions are taken. If your cus­tomer base con­tains these mega com­pa­nies, you may be won­der­ing what to do to get a han­dle on these deduc­tions. How do you know if the deduc­tions are valid? Even smaller cus­tomers take deduc­tions. Any­time the cus­tomer feels the ven­dor has not com­plied with a pur­chase order rule or has made a mis­take, it is com­mon for the cus­tomer to take a deduc­tion and reduce the amount paid on the invoice. Often, the deduc­tions are legit­i­mate, but not always. How can a com­pany iden­tify and quan­tify its deduc­tions prob­lem? This is the sub­ject of this sec­ond arti­cle in a series of five about deduc­tions and charge backs.

Although tedious, sort­ing through billing records to find where most deduc­tions come from is vital to reduc­ing the num­ber of deduc­tions filed by customers.

The first step a com­pany should take when look­ing at its deduc­tions prob­lem is to iden­tify exactly where the prob­lem is. If your com­pany tracks its deduc­tions man­u­ally, this means pulling a lot of data and then tab­u­lat­ing these data. By tab­u­lat­ing the deduc­tions data by check (dol­lar amount), cus­tomer and type of deduc­tion, you can begin to really under­stand what is dri­ving the prob­lem. Cal­cu­la­tion of the total dol­lar amount of deduc­tions will show you the mag­ni­tude of the prob­lem. Deter­mine the per­cent­age of deduc­tions rel­a­tive to total sales. This per­cent­age can then be com­pared to the indus­try aver­age to tell you if the prob­lem is big­ger than it should be. We will look more at indus­try com­par­isons later. By look­ing at which cus­tomers are con­tribut­ing the most to the total deduc­tions taken, you may be able to iden­tify prob­lem cus­tomers. Finally, by quan­ti­fy­ing the dif­fer­ent types of deduc­tions being taken, this may point out defi­cien­cies within your company’s oper­a­tions and pro­ce­dures. All of this infor­ma­tion is crit­i­cal to get­ting a han­dle on deduc­tions. If your com­pany tracks its deduc­tions on the com­puter, these same analy­ses must be done; how­ever, it will be quite a bit eas­ier and less time consuming.

Fur­ther analy­sis is the next step. Look at the “prob­lem” cus­tomers and for each cus­tomer focus in on the dol­lar amount of the deduc­tions and the num­ber of deduc­tions. Do the same thing for each type of deduc­tion. Cal­cu­late the dol­lar amount and the num­ber of each deduc­tion type. Next, look at prob­lem cus­tomers and each deduc­tion type and cal­cu­late the dol­lar amount and fre­quency by month and by year for the cur­rent year and the prior year. Com­pare the deduc­tions as a per­cent of sales for the com­pany and then com­pare this per­cent to the deduc­tions as a per­cent of sales for each cus­tomer. Then com­pare these per­cent­ages in the cur­rent year to the same per­cent­ages cal­cu­lated for the prior year. These data will enable you to iden­tify neg­a­tive deduc­tions trends and help you pri­or­i­tize prob­lem cus­tomers as well as prob­lem deduc­tions areas.

When your prob­lem cus­tomers have been iden­ti­fied, it may be time to con­sider hir­ing a col­lec­tion agency. Col­lec­tion agen­cies are very well-suited to nego­ti­at­ing with cus­tomers of all sizes and they are very famil­iar with deduc­tions. Because the col­lec­tion agency does not have to main­tain a pos­i­tive rela­tion­ship with the cus­tomer, there is more room for nego­ti­a­tion than is the case if the ven­dor takes on the debt col­lec­tion role. In addi­tion, the col­lec­tion agency’s objec­tive 3rd party role can be help­ful because the emo­tion is removed from the sit­u­a­tion. Some­times the agency can also be help­ful in rene­go­ti­at­ing future ven­dor com­pli­ance terms. Obvi­ously, each cus­tomer is unique and has spe­cial require­ments, and the col­lec­tion agency can be an effec­tive go-between in this context.

Once you have deter­mined what is hap­pen­ing within your com­pany rel­a­tive to deduc­tions, it is now time to com­pare these find­ings against what is going on in your indus­try. Deduc­tions are a hot but­ton these days for retail­ers and ven­dors alike. There­fore, there is likely to be a lot of data out there relat­ing to deduc­tions. Uti­lize this infor­ma­tion to give you even greater insight into the deduc­tions prob­lems your com­pany is fac­ing. If you find out that every­one in your indus­try is fac­ing the same sce­nario as your com­pany, this can at least make you more com­fort­able that the work­ings within your orga­ni­za­tion are not badly askew. This is not to say that improve­ments can not be made. How­ever, it may take away some of the anx­i­ety sur­round­ing the problem.

Once you have thor­oughly ana­lyzed the sit­u­a­tion within your com­pany and as it com­pares to the indus­try, the next step is to iden­tify action steps to work towards reduc­ing or even elim­i­nat­ing cer­tain types of deduc­tions. Remem­ber, you will never be able to com­pletely elim­i­nate deduc­tions. Deduc­tions are here to stay because retail­ers have been able to reduce their staffing lev­els by mak­ing it the vendor’s respon­si­bil­ity to prove or dis­prove the valid­ity of deduc­tions taken.

The next arti­cle in this five part series will deal with devel­op­ing an ongo­ing track­ing sys­tem for deduc­tions. Click here if you would like to go to the next arti­cle Col­lec­tion Agen­cies And Deduc­tions And Charge Backs – 3 Of 5. Click here if you missed the first arti­cle Col­lec­tion Agen­cies And Deduc­tions And Charge Backs – 1 Of 5.

The Kaplan Group is a bou­tique col­lec­tion agency spe­cial­iz­ing in large (over $10,000) debt col­lec­tions due from busi­nesses. Founded in 1991, the com­pany has a stel­lar rep­u­ta­tion (A+ rat­ing with the Bet­ter Busi­ness Bureau) and is rec­og­nized as one of the lead­ing col­lec­tion agen­cies for results on large and com­plex mat­ters.

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