Deductions Management for CPG and Inventory-Based Businesses

July 18, 2023

As a business owner, you understand the importance of managing your finances effectively. One aspect that can significantly impact your bottom line is deductions, especially if you are an emerging or established CPG or inventory-based business selling into the retail sector. This article sheds light on the importance of deductions management and how it can benefit your business.

The Challenges of Distributor Deductions

If you’re operating in the wholesale food space, you may have encountered distributor deductions from major players like UNFI/KeHe. However, these deductions often come with substantial accounting considerations. Accountfully, as a leading provider of outsourced accounting services with extensive experience in supporting CPG businesses, understands the complexities and long-term cash effects of deductions. The good news is that they can help you effectively manage deductions if you’re considering or have already entered the wholesale grocery realm.

Why Deductions Management Is Worth It

When you secure a retail opportunity, the excitement of this achievement can sometimes overshadow the finer details outlined in the contracts. Many companies face challenges due to extended cash cycles caused by the deduction process or unexpected deductions taken by retailers. Accountfully offers a proactive solution to counteract these challenges, dispute inaccuracies, and establish better relationships with your vendors.

Let’s explore the benefits of deductions management:

  1. Increased profitability: Deductions management can result in significant repayments, potentially amounting to thousands or even hundreds of thousands of dollars. The key is to mitigate charges before they are incurred. By effectively managing and disputing deductions, manufacturers often experience a substantial decrease in deductions initially charged by distributors.
  2. Creation of equitable relationships: Deductions management fosters healthy and equitable relationships between manufacturers and distributors, leading to reduced overall deductions. By actively engaging in the process, you can ensure that deductions are fair and accurate, building trust with your business partners.
  3. Insightful reporting: Accountfully provides basic financial analyses to track trends related to deductions. This includes monitoring deductions as a percentage of revenue over a given period and tracking the dollars disputed versus the dollars repaid. These metrics help you understand the return on investment (ROI) of the deductions management service over time, allowing you to make informed business decisions. Accountfully ensures that these metrics are monitored monthly.

What Does Deductions Management Entail?

Deductions management involves tracking, managing, and disputing deductions incurred from your retailer and distributor relationships. Initially, Accountfully will take the lead in this process, working closely with you to understand your business and the specific processes behind each distributor relationship. Once a cadence and process have been established, the support can either continue as an ongoing service or be transferred to a team member within your organization.

When Do You Need Deductions Management?

Any business that requires regular or one-time deductions support and insight into their deductions status can benefit from deductions management services. Here are some typical benchmarks that indicate the need for this service:

  • You need more visibility into your distributor deductions.
  • You have disputes and are struggling to make progress on your own.
  • You are concerned about the potential cash flow implications of deductions and want to be proactive.
  • You are considering entering a retail or wholesale relationship, or you have recently established a wholesale account.

Understanding the Cost

Accountfully’s deductions management service is charged hourly at a rate of $175 per hour. The scope of the service is broken down into three main phases:

Phase One: Discovery and Implementation of the Deductions Management Process During this phase, Accountfully delves into your chargebacks, examining various intricacies such as slotting, spoils, sales discounts, vendor fines, shortages, non-compliance fees, and cash discounts. This discovery period involves working closely with you to understand your business and the specific processes related to each distributor relationship.

Phase Two: Tracking and Disputing Deductions (Agreed Upon Time and Scope) Once the processes and your business have been thoroughly understood, Accountfully starts tracking all deductions, validating those incurred and disputing any that are not valid. Furthermore, they keep track of expected refunds or credits to be received from each distributor.

Phase Three: Deductions Tracking Going Forward As the deductions management process matures, you have two choices:

  1. Continue the service indefinitely: Accountfully can continue providing deductions management as an ongoing service, ensuring your deductions are managed effectively over time.
  2. Self-management with guidance: Accountfully can help you create a process and tracking mechanism that they will train you on, allowing you to manage your deductions internally. This option provides more flexibility for those seeking ad-hoc or hourly/project-based solutions.

What Do You Gain?

By engaging Accountfully for deductions management, you can expect the following benefits:

  • Increased profitability: The effective management of deductions can result in higher profits for your business.
  • Visibility over deductions with helpful reporting: Accountfully provides insightful reporting, allowing you to track and understand your deductions more effectively.
  • Key relationship building: Through the deductions management process, Accountfully helps establish crucial points of contact and foster stronger relationships with your wholesale accounts.

Client Success Stories

Accountfully’s deductions management service has yielded remarkable results for many clients. Some notable metrics from their longest-standing clients include:

  • Average repayment amount of $94,329
  • Average return on investment (ROI) of 384%
  • Over half a million dollars recovered for clients to date
  • Average ROI of 132% across all clients

These numbers demonstrate the significant financial impact that deductions management can have on your business. Some newer clients have achieved ROIs upwards of 667%, highlighting the value of proactive deductions management. Here’s what one client had to say about Accountfully’s deductions services:

“$100,000 of incorrect deductions from our two largest distributors. Yes, that number is correct. My brand Pitaya Foods is on pace to re-coup $100,000 this year (already $50K+ back in our bank). Last year we made the decision to hire someone full-time just to keep track of these deductions, and my biggest regret is that we did not do this a long time ago. If you are a brand just getting off the ground, pay attention to this early. If you are a big brand thinking it isn’t a big deal, you are wrong.” – Chuck Casano, Pitaya Foods

Getting Started

For new clients, Accountfully begins by learning about your business and discussing the service level that best suits your needs. You can start by sharing basic details about your business and scheduling a call on their contact page.

Existing clients can initiate the process with a discovery call, during which Accountfully evaluates the best course of action to start managing your deductions more effectively.

In conclusion, deductions management plays a vital role in optimizing your profitability and establishing equitable relationships with your distributors. By partnering with Accountfully, you can gain visibility over your deductions, dispute inaccuracies, and achieve significant returns on your investment. Take the necessary steps to protect your bottom line and ensure your business thrives in the competitive world of retail and wholesale.

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