According to the study by Attain Consulting Group, about 90% of deductions are valid and about 60%-80% of the valid deductions are related to trade promotions. Irrespective of whether the deductions are valid or invalid, analysts spend the same amount of time in resolving deductions. There?s still enough value in weeding out invalid deductions and add dollars back to the bottom-line. Automating deductions identification and research is yet another low hanging fruit to refocus resources from deductions operations to higher-value operations including credit and collections.

7.1. Top Challenges in the Deductions Process

Figure 13: Organizations Missing Out on Identifying Deductions at Source

The first challenge is identifying that there is a deduction. Most times, deductions could be directly identified at cash application but given the resource-intensive process and the volume of payments, this doesn?t get done. There is a second related issue of errors in entering the right deduction code into spreadsheets or ERPs because of manual work.

Figure 14: Manual Steps in Resolving Deductions

As the above figure suggests, right from identifying deductions and taking action, there are a lot of manual steps. One of the biggest challenges is working on diverse systems for claims download, trade promotions data and deductions to take action.

7.2. How Top Organizations Automate Deductions Operations

Deductions analysts spend an equal amount of time validating both valid and invalid deductions so a lot of wastage could be eliminated by automating the deductions process to eliminate all the valid deductions from an A/R analyst?s worklist.

Figure 15: Two Steps to Automate the Deductions Process

Automating the deductions back up aggregation for claims and proof of delivery and attaching these to open deductions could significantly reduce the time take in backup retrieval and research. After leveraging the data aggregation bit, integrating the ERP with a trade promotions system and empowering the analyst with AI-based algorithms to search for patterns invalid deductions will further help the analyst focus only on the invalid deductions. To be safe from invalid deductions an organization needs to perform a root-cause analysis and lower the allowance for doubtful accounts by using analytics to isolate the cause of recurring disputes. Faster deduction resolution results in faster collections, thereby lowering DSO.

7.3. Deductions Automation Success Story: Dr Pepper Snapple

Dr. Pepper Snapple, the beverage manufacturer had a high volume of deductions before leveraging automation. By leveraging automation to reduce deductions workload and focus on root cause analysis, Dr. Pepper Snapple was able to recover an additional $1.4 Million in invalid deductions and also reduced the volume of deductions by 13%.