Don't go easy on deductions.(Communique)

Deductions or chargebacks, as they are sometimes referred to, are a fact of life and a big cost of doing business. Therefore, it is not surprising that a high percentage of credit department staff time is devoted to handling those issues. Some companies report as high as 75 percent of staff time devoted to deduction management.

Deductions must be compartmentalized. Not all deductions are created equal and they come in various sizes and shapes. Therefore they must be grouped together with like deductions and worked together. Ten categories is sufficient--with the last one being called miscellaneous. It is important to code deductions accurately into each category.

Deductions must be communicated internally. Some deductions are already authorized by management and are non-recoverable. These should be handled immediately and cleared off the accounts receivable. It should be noted in the credit policy and procedures manual that the officer of the company (such as General Manager, Director of Credit, Chief Financial Officer, etc.) is responsible for approving the write-off of these deductions.

Deductions stemming from inefficient operations must be tackled on an organization-wide basis. Here, deductions came about due to weaknesses in the operations of the organization. without being troublemakers, credit professionals must help resolve issues within the organization. When I was an internal auditor, people resented me for writing exception reports then moving on to the ...