As a brand, it's crucial to stay on top of your financials. That includes being aware of deductions from your sales revenue, especially when deductions can significantly impact your profit margins.
In this blog post, we'll dive into what deductions are, why they happen, and why brands should care about managing them effectively.
Trade promotion deductions are reductions in the payment that a brand receives from its wholesaler or retailer.
They are usually taken from gross invoice payments for a variety of reasons, including promotion advertising, rebates, slotting, returns, damaged goods, and price adjustments.
Deduction management involves tracking, reconciling, and clearing deductions to make sure that they are accurate and justified.
Among deduction types, trade deductions typically comprise the largest segment of deductions for many CPG companies. In most cases, trade deductions constitute more than 50% of all the deductions received.
However, there are several types of deductions, including but not limited to:
The administration of deductions is an essential step in a company’s overall trade promotion management process.
Properly analyzing and validating trade deductions, also known as chargebacks, helps put dollars back on the company’s bottom line and works to enhance the entire supply chain.
Streamlining deduction management workflows helps CPG companies go after bigger wins and achieve better results within their organization.
Deduction management is important for several reasons, including:
While deductions are a constant in every supplier’s accounting process, deduction management is a time-consuming process that requires a lot of attention to detail and communication between all parties involved. It’s tedious — but it doesn’t have to be.
Automation plays a crucial role in helping companies focus on their most high-value activities. If a company’s accounts receivable team is spending too much time wrangling Excel spreadsheets, they’re unlikely to have the time or resources to innovate, follow up, or think strategically about trade spend.
Automating the deduction management process enables teams to be more agile and spend more time on non-trade deductions, like forecasting or optimizing trade promotions, that may require more attention.
Vividly helps CPG companies automate their end-to-end deduction management process with our #1-rated trade promotion management (TPM) software.
In addition to our software, Vividly also offers a full suite of white-glove deduction-related services, including:
In addition, you can use Vividly to easily plan a year’s worth of trade promotions, improve cash flow with real-time forecasting, access to in-depth analytics with easy-to-read dashboards, and integrate your ERP systems to populate baseline volume and revenue projections at the direct and indirect levels.