Jessica Butler: [0:05]
Thank you. Hi, everybody. So I’m going to talk a little bit about deductions. Just a little, I don’t have a lot of time as any of you who know me. Yeah, that’s pulling. Any of you who know me know, I can talk like for the whole day about any one of these slides individually. But I’m going to move quickly. If you have any questions. My goal is to sort of challenge you a little bit, get you thinking about some of the things I’m talking about, and then leave enough time for any questions. If there isn’t enough time for questions, but I’m sure there will be. After we go outside for the whiskey tasting, which I will be in that line, you can find me and ask me any other questions. All right. So we’re going to look at some of the results of a recent deduction survey that I did, and talk about how automation can help some of the big issues. Right, so we’ll look a little bit at the survey, we’ll talk about some observations that we found from the survey, and then some five key issues and how automation can help with those issues. And then at the end, I’m just going to share with you a couple of tools that we have to help you understand how to evaluate your deduction management performance of your organization. I’m all about sharing information, and helping companies kind of take action and do steps proactive steps to help themselves improve. Alright, so the benchmark survey. So maybe some of you have seen this survey, it’s been around the credit Research Foundation actually started it in 1998. And every three years, they would send out a questionnaire and they’d get the information and they compile a deduction survey. And I don’t know, Kathy, you probably remember, it used to be like a 300 page book every three years. And I would get that data. And I would do a lot of the analysis for them. And a lot of the the executive summary. And as of 2015, they sort of transitioned that survey over to attend consulting group. So every three years we do this survey. And the last time we did the survey was in 2021. And I’ll show you at the end, but just in case anyone leaves before the end, if you go to the attend Consulting Group website, you can enter your email address and get a PDF of the survey. This is the first year no longer printed, I kind of miss my Little Red Book. But I figure I’m doing good things for the environment. And you can download a copy. So in this survey, we had over 100 companies respond, which was not a lot of companies compared to what we’ve had historically. So hopefully, in a couple of years, we’ll get more. But we looked at seven different industry groups that we broke out. And we also broke out companies less than 500 million, and over $500 million in revenue. And we had over 50 questions. It was interesting, this survey round. I put together a group of about six or seven companies before the survey because I thought we had too many questions. Let me put them together. Let’s go through the questions. And let’s figure out which ones we can get rid of. We added four. So you know, whatever. But a couple of things that I’ll share with you from the survey, but then I’ll get on to some of the big opportunities. So 53% of the company’s respondents said that their primary customers were retailers. So when I first started dealing with deductions, I thought that most companies that had deductions were those that sold to retailers, because that’s what I was used to. But as you can see so many companies in here your primary customers are not retailers? Anyone, just a few. But a lot of companies, their primary customers are not retailers or distributors. But you still have deductions. So a lot of people in the construction, business building supplies, they have a lot of deductions, different types of deductions, but it’s the same sort of the same process and the same problems. You can see a lot of companies that responded had revenue, annual sales of over $500 million.
Jessica Butler: [4:13]
A couple of main observations, so five key challenges. The first challenge is that people said that with COVID. And lately a lot longer time to resolve deductions, longer turnaround time. There’s always been challenges with cross functional teams, right managing deductions. It’s not a company-wide issue. One area, even though it often ends up in finance or accounting, they can’t solve the problems. They’re not the ones that slap the wrong label on the box or they’re not the one that made the agreement with the customer. Yet you’re dealing with everyone’s junk when it comes in and they don’t pay. We’ll look at some low recovery rates on invalid deductions. It’s interesting. I feel that a lot of the survey information that we get is self reported, right? I don’t go out and audit everybody’s survey responses. And some of the invalid rates, even though they could be higher. I think they’re higher than what I’ve seen with a lot of my clients. But maybe that’s because those are my clients. And that’s why they’ve asked me to come and help them. Also some deductions, aging, a lot of people deductions get old, right? And deductions are not like fine wine, they do not get better with age. So that’s an issue. And the last thing that we’ll look at is inadequate reporting. So the first thing is, we talked about timing, I sent out a survey at the end of last, was it last fall or even I think was last fall, and ask people what the biggest challenge was managing deductions since COVID, like in COVID, and 53% of the respondents said, it was a longer turnaround time, right, with people remote, everybody being remote, it just took a lot longer to get information, it took a lot longer to work things through the process. The next thing, the internal challenge with cross functional teams, this has always been forever and ever. Every time I’ve been involved in a survey, we always ask the question, what’s your number one internal challenge, so forget the customer, we can blame the customer for everything. But look at yourself, what’s your number one challenge? And always, it’s cross departmental cooperation. It’s how do we get people to work together? How do we get people to take ownership and maybe take corrective action? Or tell us whether something’s valid or invalid? So that’s always been a challenge. And when you look at cross functional teams, and you look at people who have, let’s say, a dedicated compliance group, it’s always interesting to me that 66% of the respondents said they don’t have what they will call a compliance group, a separate group that’s looking at deductions. Yet, when you break it out by industry, it’s really not very surprising, I think, if you look at some of the industries that have a very small number of compliance groups, so those are industries that have the vast majority, 80-85% of their deductions are trade related. So those industries have trade deductions. And then they have shortages and unsalable returns. But they don’t typically have the volume of compliance related deductions that people like apparel and footwear have, right? So in the apparel and footwear industry, they have so many different types of violations, compliance violations from everybody’s pallets, but from ticketing, and labeling and carton markings and weight and excessive packaging. And it’s November, here’s a new one, and it’s December, and here’s another one, and you didn’t have a pink sticker on the box, and you didn’t have a blue sticker on the box. So those industries, the apparel industry, have a lot of that. And that’s why to me, it’s not surprising that they have a much larger percentage of compliance groups within their organization. If you look at recovery rates of invalid deductions, so when we ask companies, what percent of your deductions are invalid? So you can see in the bottom left, it ranges by industry, and the apparel and footwear and anybody apparel footwear in here?
Jessica Butler: [13:19]
Okay, because I want to question some of the data, how it could go from a median of 15% to you know, like, 5%, over three years, but okay, it could be a cross section, but people are saying, you know, maybe I have between five and 8% of the deductions that I receive are invalid. And so of those deductions that are invalid, right, they’re invalid, you have determined they should not have been taken. But invalid means what percent do recover. So the median recovery is 60%. So 40% of deduction dollars that are invalid, and disallowed are not recovered. That’s a lot when you think those are the ones that are invalid. So why are you not getting more of that? So that’s a big opportunity. And 19% of companies said they recover 10% or less of these invalid deductions. So that’s, to me, that’s a very big opportunity for organizations. Right? And if you think about it, you think, like, should you have a high percentage of invalid deductions or a low percentage of invalid deductions? Anybody have a thought? Is it better or worse to have a high percentage of invalid deductions? It’s a trick question. Anyone have a thought? Can’t really say and the reason if you have a very low percentage of invalid deductions, I challenge the quality of your research. I would say that maybe you aren’t doing the right research to really find those deductions that are invalid, and maybe it should look more. On the other hand, if you have a very high percentage of invalid deductions, I say, what are you as a company doing to contribute to these false positives? You know, what are you doing to it, your paperwork, your documentation, something you’re doing your configuration if you do a lot of work with Amazon, but what are you doing that hat makes these customers think that it’s a deduction when it really isn’t? So how can you look at it? So I don’t know what the right invalid percentages? All I know is that you should be recovering a very large percent of those, you really should if you’re not you want to look at how are you doing it? What are your How are you disputing it? What kind of backup Do you have? What kind of documentation? So we’ll talk about that in a minute. The next thing that was very surprising, not surprising. The next thing to point out, though, is when we ask people, How long do deductions remain open? Before you just clear them? Or write them off? 44% said, for the rest of my life, you know, I never, they just they just remain open? That’s not a best practice. No. On the other hand, there are companies who are very happy when I go in to see them. And they say, look at our aging, you know, look at our open deductions, it’s great. And then I find out well, that’s because you’re writing them all off. It’s, you know, I could do that, too. So when I go to clients, and the companies are very focused on their open deduction balance, I can fix that overnight. I’m just going to clear it all. Like, that’s not the goal. So many companies are focused only, or primarily on the open balance and really be open balanced shows me how well I processed deductions that are coming in once they’re in the system. What I think is a really important indication also is, what are the total deductions I’m receiving? Because that shows me how well as a company, I’m following directions, that’s a very different mindset than what’s open. So it’s a combination of those two, that help you really do a good job of managing deductions in the organization. Right? And why do people keep them open so long? Well, you know, okay, eternal hope people think, you know, I don’t buy it, do usually because they, you know, they lose track of it, they’ve given it to another department, they’re waiting for someone to get back to them, they hope they’ll get to it eventually. It’s not, it’s really not a great thing. And the last thing that the survey pointed out was the fact that many people, most people are really not very pleased with the deduction reporting that they get, and the information that they have in the bottom bullet point over here, only 14% of respondents were able to track and calculate recovery, deduction recovery, how many people use SAP, right, so I know you’re not getting deduction recovery, unless you’ve coded it and done a split, I have some clients who’ve been creative within SAP and can do things like use a special posting key have a different reason code that helps them be able to go back and do the tracking. But it’s not a standard thing. Okay. So how can automation help specifically, right? How could we here? We’re at radiants. So how can HighRadius tools help? How many people currently use HighRadius deduction management?
How many people are in the process, maybe, of putting? And how many people are thinking about it I don’t know, maybe it’s something that we might want to look at. Okay, so let’s talk about it. And all of the above. And even those of you who have it, you could probably look at how we can do it a little bit better? So what can we do? The first thing is in terms of turnaround time, how can we reduce a lot of the manual work that people have been doing to manage deductions, how do we automate that? How can we look at the information that our customers have? The carriers have other people that’s in our ERP systems like invoices, and how can we automatically get that information and get it to the right people? So with HighRadius, what you do is when that deduction comes in, that deduction, can have remittance information, the debit memo, right? The customer’s claim, a deal sheet, a contract, the invoice, the pod, the bill of lading, already attached to that deduction. So rather than having someone have to start to pull that information, that information can already be there. And that information can even be smart. So it’s got your reason code. And one of the things that Ty radius is working on now to even enhance the tools even more is in the past. When you implemented the tool you worked with HighRadius to come up with how are we going to do the reason for code mappings? How can I tell a Cash App what the deduction reason code is, how can I tell from a customer’s claim what my reason code is? How can we write these rules? Well, they’re now using AI and machine learning to automatically calculate the As rules to automatically tell you as the client, here are the rules that we’re going to use for these customers that are going to give you the biggest success. So really taking it to the next step to say, we’re going to be able to not only pull the documents, but we’re going to make them really smart and enrich that data. So that we can give you some really good information. It’s going to cross functionally, within the tool, have people be able to have information, you can route things to different people, they can automatically get a deduction or get information, if it’s a certain customer, or a certain reason code, or over a certain dollar value. So everything’s within the system within one system, you can add notes, all sorts of information. So away from the post it notes, you can have tasks, you can have reminders for people. So it really helps you with cross functional collaboration, you can dynamically assign things to people, you can have a different owner, and a different processor. So someone who owns it might be someone in the finance group, and they are responsible for making sure that that deduction is ultimately cleared. However, at any point in the deductions lifecycle, there may be a different processor, who’s responsible, if I’m working on shortage, maybe there’s someone in my, my, you know, supply chain group that has store my logistics that’s working on it, if my salespeople are working, good luck if the salespeople are working in the tool, but if they happen to be, you know, maybe they are, maybe they’re looking at a trade, and they’re going to give information, but it can be routed to different people who have different ownership for different parts of it. And it can be done dynamically. Invalid, this is something that, again, is really kind of lightyears ahead of other tools that I’ve seen, were using AI using these predictive qualities, it can tell you when these deductions come in, what they what this tool thinks is the confidence score, the percentage that they think, is if it’s valid or invalid, and how confident they are in predicting the validity. Now, when you put this tool in the initial prediction is only as good as your historical information. Right. So if you’ve been doing a good job, historically, of tracking whether deductions are valid or invalid, when HighRadius takes the data, and puts in the outputs in the information, the algorithm is going to come out with pretty good information. If you haven’t done a good job, it is not as I say, the tool is not magic, looks like magic, if you’re not behind the scenes, looking how all the pieces fit together. But it is not magic, you’ve got to configure things and setting things up and feed it with data so that it can then perform the way that you need it to perform. But the more you know about how the pieces fit together, the better that you can be. And HighRadius, I believe, is making it more like magic as they come up with these kinds of algorithms. And as they come up with these rules based on patterns that they’ve seen. But the ability to take this data and to predict whether something’s valid or invalid can really save not only on the time, but it can increase your invalid recovery. Because there are many customers that have time limits, that if you don’t dispute within a certain number of days, you’re done. So how can you automate that? How can you quit more quickly to automate and dispute the things that you know, you want to dispute. And if you look at this little chart, which may look a little confusing, but it’s really simple. Once you break it down, this is a HighRadius chart, how they look at a lot of the AI information. And if you look at the left hand side, what it says is, if something is valid, if the system is predicting, it’s valid, and it has, we’re very sure it’s valid, you know, like 95%-99% sure that it’s valid, and or the dollars are really low, don’t spend a lot of time just move on. On the other hand, at the other end, the red even though the red maybe should be green, because that’s money back, you know, and the green should be red, because you lost that. So what I think, but if you look at the red, the invalid if if I am really confident that this deduction is invalid if the system is predicting, I’m very confident it’s invalid, or the dollar is very high on that jump on that right away. I want to focus my analysts to work on those things where I have an opportunity to recover quickly. And the things that the other end where you know what I know they’re valid, or it’s really low, not worth a lot of time, don’t focus your energy on there, and the stuff in the middle, but I’m not really sure or Thai dollar amounts of certain things, then you can focus on that but by having people jump onto the invalid quickly, can really improve your recovery. And it can obviously add money to the bottom line. Does that make sense? Right. And even though like me I’m initially a bit of a skeptic about AI for deductions. And really, are there really patterns? You know? Are you going to tell me that every Wednesday? I have, you know, more shortages? I don’t think so. But on the other hand, if I look at something that over time is invalid, and I’m really sure that this salesperson always forgets to, like write up their deal, or just shows me things that even with the human eye, I could not tell you. But when I feed it all this data, this data shows me these patterns, then if you’re if you really think that something’s invalid, I’m going to look at that. And I want to focus people’s attention there. And then if I find out as I research it, it’s right. Well, now that’s feeding into the algorithm that is going to continue to run the system. And it’s going to learn more. So I’m a little bit of a convert about that. I guess, the last thing is about reporting, the last of the five challenges, and with HighRadius, the analytics that they have, again, provide more reporting capabilities than a lot of people have. And they’re doing something I think, pretty cool. Right now, with cash apps and deductions. It’s pretty new. But to sort of solve the, we don’t know, if it’s recovered, what they’re doing now a Cash App, when if you’re matching payments, with deductions and recognizing the payback at Cash App, Cash App can send information to the deduction tool to signify that it was a payback. Here’s the check that was paid back. Here’s a payback amount. And here’s the date. So that’s kind of cool. Okay, so a couple of other things that I wanted to point out about technologies, one of them, so 75%, of responding companies, with revenue over $500 million, said that they were using third party technology for some part of their deduction management process. And it went from 58% in 2018, to 75%. But that was high. The next thing I asked, what, how many of you, are you planning to do any automation in the next year thinking, I don’t know, like a small percent 39% of responding companies said they plan to automate some step or something in the deduction management process. And I think that people would COVID People realized, it’s really important to have automation, it’s really important to be able to work remotely and have people be able to get information and pass things back and forth and know where we are. We can’t stop by everyone’s desk and ask them questions. So I think it was a bit of a wake up call. And you can see a little bit about the types of things that people were going to automate.
Jessica Butler: [22:43]
Okay, we have to do this polling. Okay. What do you think is your biggest challenge around automating deductions? We can do your hands who think? Who thinks it’s the lack of stakeholder buy-in? You got a few? Who thinks it’s the inability to find the right vendor? Nobody raises your hand? Who thinks it’s too high risk to disrupt our current operations? Okay, who thinks there’s no clear business case for automation? And who doesn’t understand the question? Okay. All right. All right. So okay, just a couple of fine. Couple of other things, I want some information just to share with you. On the left hand side is this deduction survey. So if you go to my website, a 10 consulting.com, you can put in your email address and out will, you’ll get a PDF of the survey, the middle one, also online, if you go to the assessment, you can put in five or six pieces of information, like your industry, and the information goes absolutely nowhere. You’re lucky if I ever add you to my anything, because I don’t serve out. I don’t send out emails anyway. So don’t worry about it. But you can do an online assessment where you can put in your, your industry, your sales volume, a few other things about your deductions, and you’ll get a one page report that tells you where you stack up against others in your industry based on the benchmarks for 2021. And the last thing is this deduction Management Maturity Model, which you can also get from my website. This is something that senior management seems to really love. And it shows you on the left hand side are the six categories, different factors that are important for managing deductions, like how well do you manage your customers compliance requirements? Yes, they have those, you know, how good is your cross functional communication? How good are your processes, use of technology? And when you go from the left to the right, in each one of those little boxes, it gives you a little snippet of a company that will take cross functional communication, collaboration As an example, so no collaboration across departments at all, you’re an ad hoc company, not really where you want to be. That’s why it’s red. Okay, maybe your collaboration is limited to firefighting a little bit better. Still not great, but a little bit better. You’re now reactive. Then the next one, we have routine cross functional meetings. Proactive, that’s really great. And then if you’re optimized, cross functional teams drive continuous improvement, usually within a system. So this is a really good way to look at how you are doing? Where are you, and what might you need to do to move up to the next level? And just so that, you know, the media and most companies are reactive. Most companies agree that they’re reactive, and the biggest financial benefit can be from moving from reactive to proactive. And so with that, I’m done. I don’t know how I don’t know if you raise any cards. I didn’t see any timing but All right, yeah. But is there a line yet out there for the whiskey?
