Advertising, Slotting, Manufacturer Chargebacks (MCBs), Scans, Merchandising, Club Promotions, Coupon Redemptions… OH MY! These are just a few types of promotions most consumer packaged goods (CPG) companies roll up under their second largest expense; Trade Spend. These expenses are known as deductions or chargebacks, and can be expressed as bills or a reduction of Accounts Receivables (AR).
In this short chapter, we will explore the necessary steps to validate each expense on the Income Statement. We’ll also explore a framework you can use to establish a proper deductions management process. Ever wonder what you and your accounting department should do when faced with stacks of chargebacks? Firstly, you may need to clear AR based on customer invoices. Pay special attention to the Purchase Order, Sales Order, Invoice, Bill of Lading, Proof of Delivery, and Contract Terms when validating payments. This is a straightforward process that we will revisit in future chapters.
Secondly, there is no better time than the present to organize those stacks of chargebacks! These will directly impact bank reconciliation and financial reporting come closing period or month. Defined below are the five key metrics — the Fab Five — to review before you’re able to accurately report closing financials.
These questions are essential for knowing whether the deductions in question align with your company’s annual trade spend plan. If you don’t have a clear answer to each of these questions, it’s time to go back to the drawing board and review the expense. Meetings with your sales team, brokers, or buyers can assist with these forensics! Real time answers are essential for meeting month-end deadlines and passing key audit objectives at the end of the year.
At Vividly, we’ve developed the tools needed to manage the Fab Five. Through our streamlined trade promotion management platform, Deductions Scanning and Deductions Matching add-on modules (patent pending), every brand can and will maximize their opportunities with trade. In fact, more than twenty of our brands are doing so already!
Want to learn more? Connect with us.