There are many types of deductions the Consumer Packaged Goods (CPG) industry faces that can start to stack up against you if not handled appropriately. Today, we will go over what deductions are, why they are important to monitor, and most importantly, how to dispute them. In addition, we will review the most common and complex types of deductions you will get. First up, Manufacturer Chargebacks (MCBs).
What are deductions?
Deductions are reductions, usually denoted as a discount for a contracted incentive, on your invoice or check receipt that come either from the retailer or distributor. Deductions have a wide variety of reasons for why they occur. Examples include but not limited to:
Also, deductions can simply be the cost of doing business such as administrative fees for retailer deductions running through a distributor. By utilizing a TPM Software, there has been an average increase of 21% of promotion planning accuracy here at Vividly, which translates to a more optimized cashflow.
Deductions are going to appear over the lifetime of a brand, and the trick to being successful is knowing which deductions are valid, invalid and warrant a dispute. When you come across a deduction that you think is invalid, it is imperative that you gather all the information you can regarding that deduction as well as follow the defined dispute process via distributor or retailer. All distributors have a process to submit disputes which can vary from distributor to distributor. It is crucial that you follow this process of disputing, otherwise, your dispute might be disregarded. If you are unfamiliar with the dispute process you are making at a distributor, ask your respective sales/ broker representative and/or find the formal contract you signed with the distributor for further insight.
Below is a list of some, a * includes necessary item at all times, of the possible items that you will need to make a dispute successful:
Manufacturer Chargebacks (sometimes they are referred to as Bill Backs or Chargebacks) are one of the most common deductions that you receive from a distributor for running a promotion at a retailer. These are different from scanback deductions as scans come directly from the retailer as they are from the final point of sales and include no mark-up. MCBs, however, come from products the retailer buys at discount from the distributor that services them and hopefully pass on to the consumer, the final point of sale.
While often stigmatized because of their size and format, having MCB’s is a sign of a healthy, growing brand, as long as they are managed correctly. If you are unfamiliar with MCBs, we did a deeper dive into them in one of our prior posts. When walking through the structure of an MCB, the main issue to identify is if the expense matches your promotional calendar. MCB charges will typically have various % discounts that can range from 1-100% and include distributor mark-up. For reference, slotting is for products given out for free which can be classified as >50% discount, typically this is for new products you want to introduce in stores. When verifying MCB deductions, it is important that the expenses you receive correspond to an up-to-date promotional calendar. If not, verify that your promotional calendar matches a confirmed contract that you have with the retailer in question. If this matches, then you have a potential dispute case to make. If you have further questions regarding validation, see this previous blog where we discuss more important questions to ask yourself when disputing. Below is a chart showing the timeline of what a MCB deduction dispute might look like:
Click here to see a larger image.
Another example pertaining to MCBs is administrative fees. Administrative Fees are fees that are charged by a distributor on the MCB report and are essentially the cost of doing business with the respective distributor. Normally, these are charged either as a percentage or a flat fee of the chargeback, this varies depending on what is on the MCB as well as the contract that you sign when doing business with these distributors. However, catching invalid fees is an easy way to help save you money. Here are some things to look out for:
For example, many of us at Vividly have been successful when filing disputes with distributors regarding admin fees when disputing MCBs with only slotting expenses, as sometimes, some distributors are only supposed to take a % of the chargeback rather than a flat fee. On average, you can save up to $40 per deduction invoiced, which while small, can help you save upwards of thousands of dollars per year! This is just one example of how staying on top of deductions can help take your brand from emerging to growth to scale.
By monitoring your deductions, including validation and dispute filing, will help your brand better manage cash flow. Moreover, CPG brands have been able to increase their margins through effective deduction management! While the CPG landscape can be quite challenging at times, we at Vividly are here to help! Stay tuned for the next blog post in this series as we will look at Short-Ships on how best to track, manage and fight these logistically complex deductions.