Magazine article Business Credit

Handling the Unauthorized Deduction Dilemma

Magazine article Business Credit

Handling the Unauthorized Deduction Dilemma

Article excerpt

According to a recent survey of credit professionals conducted by NACM, the problem of customers taking unauthorized deductions is a rare one. When such problems do occur, however, they can get sticky, as customers raise contentious issues and do their best to reduce the amount of their bill.

Deductions are also known as "adjustments" or "short payments." There are numerous reasons why a customer might short-pay an invoice, including:

* defective merchandise;

* transportation claims;

* returned goods;

* promotional allowances;

* billing errors;

* discount problems;

* other miscellaneous reasons.

As confirmed by the NACM survey, the responsibility for follow-up on an unauthorized deduction varies by company and can involve credit, sales, accounts receivable, customer service, or a combination of departments.

"Deductions are not a major problem for us, but they do pop up on a weekly basis. Usually what happens is a customer is returning product and taking a deduction, but we've not had a problem with abuse at all," said Tony Roberto, credit manager, Wilson Greatbatch Ltd., Clarence, NY.

"The deduction request comes to me and I research it to see if there's a problem. Then it's written up and passed to customer service to see if it's legitimate. If so, it's credited; if not, I or the service representative will call the customer," he said.

Regardless of who is responsible for sorting out the confusion behind a short-pay, the task of satisfactorily resolving the issue can become problematic. Many companies simply do not allow deductions at all. Other companies work with customers on a case-by-case basis to resolve the dispute.

The NACM survey revealed numerous ways that companies handle deductions. They include:

1. Addressing the deduction with a team effort of sales and credit.

2. Requiring all staff to get approval for a deduction by a centralized supervisor or branch manager to foster continuity in handling such cases.

3. Taking each deduction on a case-by-case basis and negotiating directly with the customer.

4. Issuing a credit for the disputed amount, which is often done to appease larger customers in the hopes of preserving future business contracts.

5. Issuing a chargeback for the amount not paid. Again, some companies are stricter than others when dealing in chargebacks.

6. Denying all discounts, regardless of the customer's size or perceived importance to the company. …

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