3 business impacts of a manual Deductions Management process

Deductions Management is a common aspect in almost all B2B business conducted today. In our previous article, we spoke about the ever-increasing growth of B2B E-commerce and the rise of deductions. What are deductions or disputes as they are also known? These are items subtracted from the total invoice amount owed by your customers. It is important for a company to have an efficient deductions management process.

Customers may subtract an unauthorized deduction from the invoice for any number of reasons. Such as – returns, pricing errors, late discounts, trade promotions, and so on. It is typically up to 10% of the total invoice amount, if your business processes thousands of invoices every month this can have a significant impact.

Many companies write off deductions that are under a certain value amount. Deductions over this set amount will need to be investigated to see if they are correct. Investigating thousands of deductions manually can become a full-time job for staff in the Accounts Receivable department.

This can have a serious impact on other areas of your business, it is also impossible to manually sift through and investigate each deduction individually by the end of the month. The following month also brings with it another raft of deductions. We will now take a look at three common business impacts this can have.

If deductions are taking a long amount of time to investigate and resolve, then the invoice will not be settled in a timely manner. The longer it takes to resolve, the greater the chance you will not collect the full amount on the invoice. This delay results in payments hitting the company bank account much later than expected. It will lead to an increase in Days Sales Outstanding (DSO) which will, in turn, cause a cashflow problem for the business. The longer deductions disputes continue, the less consistent and steady the flow of cash through the company will be. This can cause significant issues for companies looking to invest and grow, many companies are struggling with a manual deductions process.

As mentioned above, cash flow is the lifeblood of a business, it is hugely important to the long-term success of a company. What is more important than having a steady cash flow? The amount of cash that is flowing! A poor deductions management process can lead to customers paying a lot less than the total invoice value. If all disputed invoices are not examined, the impact on the bottom line can be devastating. This is why companies are willing to write off a certain amount. So, they can get through the sheer volume of higher value deductions. Even then, it’s almost impossible to get through them all manually. Timely and accurate order-to-cash processing is critical to the amount of profit a business makes. A good deductions management process means more value is reclaimed and added to the bottom line.

Companies cannot accuse their customers directly of trying to avoid paying the full amount of the invoice for bogus reasons. They need to maintain good customer relationships to facilitate future orders and long-term business relations. The constant back and forth of calls, emails, and letters about disputed invoices can have a negative effect on this relationship and can put an unnecessary strain on it. You want to be able to resolve the disputes in a timely manner, reclaim as much money as possible, and keep a solid working relationship with the customer. A long, drawn-out deductions management process can frustrate customers and may lead to them taking their business elsewhere.

The best way to counteract these core problems is to leverage an automated deductions management software solution. By managing invoice deductions quickly and accurately, using best practices and workflow-driven automation. Businesses can improve their cash flow, add more profit to the bottom line, and maintain strong customer relationships.

The Cashbook Deductions Management tool allows you to have one automated solution across your company. You can adapt deduction management to any bank file or remittance format and route deductions through the organization for speedy review and approvals. Creating reason and deduction codes from remittance data, irrespective of what ERP you are using. Below are some of the benefits of leveraging a deductions management automation tool.

If you are interested in discussing how Cashbook can automate the Deduction Management process for your company. Get in touch with our team, by calling us on +353 61 338 400 (International) or 630-352-2228 (North America). Alternatively, you can email info@cashbook.com. We look forward to helping your company realize the benefits of Deductions Management automation software.