Company policies: the rules of the game.(Selected topic)

One of the most important approaches to managing deduction resolution and chargeback recovery is to clearly state the rules of the game. Many companies with whom we have contact may have policies, but they are often not up to date, and may not address dynamic issues that cause repetitive deductions. Also, that a company has a policy does not necessarily mean it is enforced in a sales driven, customer focused environment. Concerning your company's critical areas in which deductions are constantly taken by customers, if you do not have a policy, then that's your policy. Further, if you do not have a policy and your customer does, you will be subject to requirements over which you have little or no control.

Policies Identify Expectations

In determining what is acceptable to your company and what your customers are demanding, policies can actually improve customer service as you bring consistency to expectations of customer behaviors. Even when you encounter a "policy vs. policy" dispute, where your policies conflict with your customer's, clear and repeated communication of your expectations (your policy), can be the basis for a settlement agreement that will help control future deductions.

Wherever you identify consistent and repetitive deduction types, you can do one of three things: Develop a policy for your company and push back with the goal of changing customer behaviors, accept the deductions as a cost of doing business, or change your company's behavior to match your customers' requirements. Some of the areas in which we have participated in developing policies are post audits, payment terms, coupons, damages and unsaleables, returns, penalty fees and unauthorized charges.

Who Should Participate in Policy Development?

First, as we all understand, deductions do not occur as a result of an action in Accounts Receivable, although it is Accounts Receivable that must resolve them. Therefore, A/R should not unilaterally develop policies. For each deduction type, root causes must first be identified, recurring issues uniquely affecting your company or industry must be addressed, and all departments involved must be included in the development process. Since interdepartmental challenges deserve interdepartmental solutions, you can understand why collaboration is the key to successful policy development. For instance, Post Audits, Sales, Marketing, Logistics, A/R, IS, even Legal may be a part of the discussions, since audit claims may involve pricing, promotions, packaging, damages, returns, logistics, discounts, EDI issues and more. If you get buy-in at the outset from all effected participants, you also get cooperation and understanding for enforcement of resultant policies.

We must also understand that we may decide that some deductions may not be cost-effectively prevented, and therefore should be recognized as a cost of doing business. If this is the case, it may be your policy to set up offsets, clearing these issues immediately, and swallow hard, recognizing that all challenges cannot be successfully overcome, no matter how hard we try. Whatever your decisions may be, you will better understand the issues, understand the costs involved, and probably give your customers, if not better service, certainly more consistent service.