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Claims Recovery Group Inc.

Provides manufacturers, suppliers and brokers with specialized professional audit expertise in recording, resolving and recovering claims that have been made against their accounts.

Best Practices for Deduction Management and Prevention

Any company that has a complex pricing structure or has problems with order fulfillment will experience numerous "unexplained deductions" through their credit department. The challenge of effectively and efficiently managing these deductions is subject to “economics” and specifically the cost of personnel and their respective work time. The questions that senior management has to ask are:

• How much do you want to spend on labor costs to process adjustments for deductions?
• How much training is needed to get the job done correctly?
• How much time is actually spent by the employee on this task?

Moreover, there are two additional hard-to-quantify issues to consider, namely

• If you rarely challenge these deductions, then the customers may become bolder in taking more deductions and for higher dollar amounts in the future.
• If these deductions are not promptly cleared from the accounts receivable ledger, you risk overstatement of revenue, profits and assets while at the same time understating promotional expenses. This could also create a problem with the Sarbanes-Oxley laws.

The solution to these problems facing the credit manager has three options which are not mutually exclusive.

• First, there should be a process for handling deduction costs efficiently
• Second, to record all post audit deductions separately and then focus on maximizing on the repayment of invalid deductions.
• Third, to make recommendations for improvements in trade spending- deal sheet information within the client’s company to reduce the number of deductions incurred.

The "how to" part of implementing these solutions involves all of these techniques:

• Efficient Processing – involves thorough line-by-line research of both the type of deduction and its validity before clearance to trade spending / sales accounts
• Prevention - full analysis of the types of deductions by customer to pinpoint the root causes of deductions.