Unfortunately, customer short-pays are common in the Consumer Goods Industry.
The good news is that when you dispute short-pays, customer behavior will change over time, even if you don’t recover the disputed funds. Here are three reasons to invest the time to research and find invalid deductions:
- You communicate that you know the deductions are not valid
- The customer learns you have a TPM solution to process short-pays
- You can use disputed short-pays to re-frame the discussion.
To successfully reduce invalid short-pays, you need to align your goals and those of your customer. Surprisingly, this is not as complicated as it may seem.
Many CG companies use a live accrual for their trade promotion. This is usually based on a rate per case on what’s purchased by the customer, or based on what they sell to their customers. The more they sell, the more trade funds they earn and have available.
The best business practice is to expense these invalid short-pays to the customer’s trade promotion fund. This essentially reduces the amount of funds the customer has available for valid in-store merchandising and other trade promotion activities.
Can you imagine a hypothetical meeting with your buyer going something like this?
Manufacturer: Last quarter you deducted $15,143 of fees, penalties and duplicate payments that we identified as invalid.
Retailer: We saw your report, and we don’t agree with your findings.
Manufacturer: Ok, but understand that these fees are deducted from your trade promotion funds. As you know, we use a live accrual. What you buy and sell generates the pot of money that we have to help build your business. The more fees you deduct, the fewer funds we have to grow your business.
Retailer: The accrual is our money, so what does it matter how we spend it?
Manufacturer: Yes, you can spend your money on fees, and penalties, but your competition isn’t. Many of your competitors are using their accrual funds to increase store traffic and build the category. That increases their share of our trade funds and the category. That puts you at a disadvantage.
Retailer: We will not change our position, and we do not agree that the $15,143 we deducted is invalid. [… but the retailer is thinking…. Hummm. They have a system to process deductions, manage trade, and we don’t want our competitors to get a bigger share of the trade spend. We’ll need to reconsider fees and penalties for this manufacturer going forward. ]
Q: So why take the time to dispute short-pays, when you rarely recover the funds?
A: It’s not just about the money, it’s about the discussion with your customer, and their perception of your ability to effectively and efficiently manage trade promotion.
Alex Ring
President
CG Squared, Inc.