Collection Agencies And Deductions And Charge Backs – 1 Of 5
By Dean Kaplan+
If your company is experiencing growth in deductions and invoice disputes, hiring collection agencies may help provide a solution. With the increasing number of giant retailers out there, the problem of deductions is on the increase. These conglomerates have developed a term called “vendor compliance” which places a huge number of rules and regulations on its vendors that it attaches to every purchase order. The basic idea is that whenever a vendor doesn’t comply with something on the list, this triggers a deduction in what is owed to that vendor. Since vendors can rarely comply with everything on the large list, deductions are inevitable, and it is then up to the vendor to prove the customer wrong in order to reverse any of these deductions and collect the amount originally owed.
Vendors are constantly struggling to fight the use of deductions. The amount of time required to track down the information required to prove or disprove the deduction or invoice dispute can be overwhelming. A big problem for vendors is that the information needed to investigate a deduction or dispute is located in many different departments throughout the company. This causes confusion and frustration for everyone involved, and slows accounts receivable down significantly. When accounts receivable collections slow, cash flow is negatively impacted as well.
In many companies, the department charged with the enormous task of investigating and resolving deductions and invoice disputes is the credit department. What companies often fail to recognize is that deductions are not just an annoying distraction to business as usual. In fact, deductions, when tracked and analyzed can provide a company with many opportunities for improved efficiencies in its operations as well as its customer relations. The truth is that when the time is taken to explore and analyze deductions, patterns can emerge. Sometimes, it will become apparent that certain customers are simply trying to work the vendor compliance profit center. Other times, it will become clear that there is a deficiency within the company’s internal processes. If improvements can be made in a cost-effective way, this can have a very positive effect on profitability as well as customer relations.
When the credit department’s analysis of deductions identifies problem customers, this may be a good time to hire a collection agency. Collection agencies are experts in dealing with companies who are sitting on invoices or purposely slowing payments. Collection agencies know what laws apply in commercial debt collections, and they know a myriad of strategies to encourage debtors to pay. They are also experts in researching and understanding what is really going on with a debtor. They have seen it all, and they recognize many red flags that a typical credit department debt collector might not see.
Deductions can be an expensive drain on companies. Therefore, it is important to develop a process to deal with them. The basic objectives of any company dealing with deductions are:
1. Where possible, determine what areas within the company are contributing to the deductions problem and make adjustments to eliminate poor decisions or improve processes.
2. When deductions come into the company, collect the necessary data and information and send it to the customer promptly so that any dispute can be resolved.
3. Collect on deductions that were taken in error as soon as possible after the dispute is resolved.
4. When a deduction is determined to be justified, get it off the books quickly so that no further resources are wasted.
The next article in this series will look at how the credit department can go about identifying and quantifying its deductions problem. Click here to go to the next article Collection Agencies And Deductions And Charge Backs – 2 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.