In the CG industry, customers don’t wait for payment of promotional allowances, discounts and rebates. Instead, they just deduct the promotional amount due from an unrelated invoice after the promotion is over. While this helps your customer’s cash flow, this industry practice creates at least two huge challenges for your accounts receivable A/R staff:
Adjust your A/R aging report for these short-pays:
- Why? Not all receivables are the same. Experience tells us that the older an invoice remains unpaid, the less likely we’ll get paid. That’s the purpose of the aging report. Promotional short-pays are also unlikely to be paid. In some CG companies, over 95% of all deductions are valid, so representing short-pays as an outstanding amount on your aging report overstates your receivables.
- What’s the challenge? You know the short-pay amount, but not the details to fully process the short-pay. It can take weeks, sometimes even months to research and resolve a short-pay!
- How? The invoice that was short-paid needs to be marked as paid, and the amount still due converted into a deduction that will be researched and tracked until resolved. This takes the short-pay off the aging report, but still with an open balance. There are three ways to resolve deductions. You can match some or all of the open balance to a promotion, expense it to a chart-of-account fund, or dispute and re-invoice.
Match the short-pay to the promotional activity:
- Why? You have no way to keep track of what you still own on individual promotional events unless you keep track of how much you’ve already paid. You also can’t create accurate P&Ls by product item unless you use the promotional information to determine which items received the promotional allowance, discount and/or rebate.
- What’s the challenge? ERPs are not designed for the unusual CG industry practice of promotional short-pays. A typical CG manufacturer can have thousands of deductions and promotion events that need to be aligned.
- How? A trade promotion management solution (TPM) will force your organization to create promotional events that keep track of what you owe and what you paid, whether by check or through short-pay. Once a promotion is paid in full, it should be closed and not available for payment or matching to open deductions. TPM software solutions are designed to manage the entire workflow of promotions from start to finish, including the resolution of open deductions.
If you use NetSuite as your ERP, ask to see a demo of how iTPM addresses these two short-pay challenges.
CG Squared, Inc.