When it comes to Consumer Managed Goods [CPG] companies, trade deductions are usually one of the most difficult areas to manage, regardless of the size of the company. Additionally, their impact as a profit drain is also usually overlooked and underestimated by management.
Here are some insights that can help business owners to avoid the traps of trade spending.
- Make training central to your process
Manage trade spend from the ground up, by ensuring that each employee understands the company’s systems and processes. So, business owners need to invest in staff training in accounting and trade spend management [TPM] systems. Your team should use record systems, and set reasonable expectations for each role. On top of that, you need to provide your employees with renowned processes so that they can understand how to constantly apply workflows and policy.
- Understand better trade spend and other deductions
For you to spend wisely, you need to anticipate deductions coming in various avenues, from the deals made by sales representatives and brokers to deductions for prior-year events.
You need to understand what your sales organization is committing to and the rates associated with typical promotions. Anticipate the targeted spend based on sales and track deductions against the actual.
Other deductions which are worth your attention include cash discount for early pay and shortages, and damages and spoils.
- Bridge the gap between accounting, sales, and finance
Without clear communication and a well-defined goal, departments may not work as they should. Promote collaboration by figuring out and explaining each department’s role in the success of the company, and explain why it is important.
You should make your employees know the importance of teamwork when it comes to sales, finance, and accounting when managing deductions and calculating accruals. The best way to build suitable insight into spending expectations is to create a framework of trade deals and promotional calendars and share them with all the departments.
- Validate deductions
The process of validation helps you ensure that all deductions are based on the stipulated trade deals and terms with customers. To ensure that this process works effectively, you need to ensure that everyone in the company is playing their part. Additionally, you can set an internal policy to create what documentation the sales organizations need to offer accounts for promotional events. Again, set an internal policy to establish any kind of documentation you require from customer service distribution facilities, as well as freight carriers to help you prevent shortage claims.
- Leverage the employees to manage data validation
The deduction support, which is provided by the customer, can include overpowering amounts of data validation that need to be reconciled against specific promotional events and contracts. Of course, this overwhelming data can create difficulties for the deduction team whose duties are to sort and validate the data. This task can also consume time and may involve filtering numerous line items to get a hold of relevant financial intelligence for finance and sales teams.
However, you can overcome these challenges by adequately staffing your teams, especially those tasked with receivables and deductions. This will help them provide timely and relevant data, which in turn will enable the management to evaluate trade spend effectively.