Retail Deduction Management Using Microsoft Dynamics CRM 2011

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This is a common scenario among Consumer Products Goods (CPG) companies:

  • CPG company sends invoice to Retailer XYZ for $100,000 worth of products purchased
  • Retailer XYZ sends in a check for $90,000 to the CPG Company

So what happened to the other $10,000?  XYZ Retailer has taken a “Deduction”.  In layman’s terms, a deduction is simply an amount removed from the total invoiced amount.  Any time the retailer sends in remittance that is less than the original Invoice Amount, it is called a “Deduction” or a “Short Pay”.  Continuing the discussion around Trade Funds Management, we are now going to cover how to handle Deductions.

Deductions are commonplace today in the CPG Industry, as well as in many other industries.  In fact, it is the preferred “Method of Payment” for some manufacturers.  The key is the ability to track the Deduction and make sure it can be identified.  Ten to twenty years ago, determining why the retailer had taken the deduction usually involved the Sales Manager contacting the Buyer for the Retailer and asking a series of questions – which may or may not provide the reason for the deduction.  Some sample types of deductions that retailers commonly take include the following:

  • New Item Distribution Allowance
  • Shipping Terms
  • Payment Terms
  • Promotional/Advertising Allowance
  • Display Allowance
  • Damaged Goods
  • Returns
  • Price Discrepancy
  • Product Discontinued
  • Mark Down Allowance

The list goes on, but the point here is that there are a large number of reasons why retailers take deductions from their Product Invoices.  In many cases, an invoice remittance may contain five to ten separate deductions.  Industry citations show that over 32% of financial transactions involve the use of deductions as a method of payment.  If retailers and organizations are not capable of reconciling these amounts, it represents a significant loss in revenue.  So what’s an organization supposed to do?

The answer lies in the Promotional Planning, Trade Funds Management, and Financial Data of the organization.  Using Microsoft Dynamics CRM 2011, I built out some sample entities directed at handling Promotional Allowances.  This would include any fees and charges deducted by the customer that are related to an Advertisement, Price Markdown, Display Allowance, or other product promotion.  Here is a quick example of the Deduction Entity, built out with the lookup references for Trade Fund, Trade Fund Event, Invoice, Account, and Original Order:


In this example, we have an Advertising Deduction that was taken on Invoice INV1 for $850 for a Promotional/Advertising Allowance.  The Trade Fund and Trade Fund Event are identified, as well as the Original Order.  Obviously, this is a simplified breakdown of a Deduction.  We’d possibly want to  include financial information such as the Deduction Analyst that helped with the resolution.  There might also be documentation that we need to attach to the deduction.  Additionally, we might want to link the deduction to a particular Off-Invoice Promotion at the Brand or Corporate Level.

As illustrated below, we can now link our Deduction as a Payment to a particular Advertising or Promotional Event for a customer:


Deductions are a big problem – and getting bigger.  Some industry experts estimate that deductions as a financial instrument are growing at a pace of 20% annually. (Source) Additionally, 14% of deductions are usually found to be invalid.  The overall sales and profit savings from addressing this issue is very large – for any organization.

By using Microsoft Dynamics CRM 2011, organizations can link their financial and CRM systems in order to provide visibility to this crucial data.

For more information, contact us at Customer Effective, Inc..

Good luck in your 2011 Microsoft Dynamics CRM implementations!

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