Collection Agencies And Deductions And Charge Backs – 3 Of 5

By Dean Kaplan+

If your company is dealing with more and more customer deductions, hiring a collection agency may provide some needed debt collection relief to the credit department.
Every company needs to have a way of measuring the magnitude of deductions being taken by its customers. Companies also need to be able to determine what types of deductions are problems so that internal issues can be identified and improvements made. This is the third article in a five part series about deductions and charge backs, and will focus on how to keep track of deductions and look for patterns.

There is no magic to tracking deductions. Basically, your company or the credit department needs to breakdown the giant category of deductions into a list of specific types of deductions. Coming up with this list will require a careful examination of the deductions that are being applied by customers. If your system of tracking deductions is manual, you will need to set up a separate file for each deduction type. When a deduction comes in, place a copy of the check into the file. If your system is automated, you will need to set up standard deduction codes and train all staff that input data into the system to use the appropriate code when applicable. The beauty of the automated system is that it will enable you to design reports which will pinpoint problem customers and/or problem deduction types which could signal a problem within the company’s operations which needs to be fixed.

If you keep all of your records manually, be sure to set up a well-organized filing cabinet or similar system of organization for records pertaining to deductions.

Whether you generate your reports manually or automatically, these data are invaluable. Without this information, your company has no hope of minimizing or eliminating deductions. The time spent to develop the tracking systems and reports is time well spent.

A key to generation of meaningful, accurate deductions tracking reports lies with the quality and consistency of the assignment of the codes. This is a training issue, and requires the credit department to train all employees who assign the deductions codes when customer remittances are received. Most large retailers today are very good at identifying the deductions they are taking on their remittance check. Retailers also track deductions so they will likely have a standard set of deductions codes that they use. When the credit department sets up a new customer file, this should be one element that is put into the file. It also might be a good idea to develop a central notebook within the credit department which contains each customer’s deductions codes. This way, when a remittance comes in, the person inputting the data into the system (or into the manual tracking system) can apply the correct internal deductions code which matches the customer’s deduction type.

One final area can be helpful when tracking deductions and looking for patterns: deduction notes. Customers may add notes to the remittance information explaining deductions. The credit department may add deduction notes when inputting remittance data into the computer. These notes can be sent to the customer when backup information relating to the deduction is needed or they can be routed to departments within the company for validation. In the case where the deduction is proved valid, the deduction notes can be attached to the credit memo used to clear the deduction.

All of the data generated by deductions can be collected and analyzed providing the company or credit department with invaluable information. If a goal of your company or the credit department is to minimize or eliminate deductions, it is essential to set up the systems to collect and process these data. In this case, information is definitely powerful.

The next article in this five part series will deal with how to prevent deductions. Click here if you are ready to go to Collection Agencies And Deductions And Charge Backs – 4 Of 5. Click here if you missed the previous two articles 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.