Dealing with deductions

You have a credit approved customer that has been doing business with you for a couple of months now.  They have been paying on time and placing steady orders.  Suddenly you receive a check with a deduction on it.  It might just be a negative number listed on the check stub or maybe the check is just for a bit less with no explanation.  

Deductions can impair your cash flow and take up valuable time, so you want to always address them right away.  The more time you let go by before addressing any deduction the harder it will be to get paid back if it is not legitimate.

When you receive a payment with a deduction, research the deduction immediately.  If you need to provide paperwork to the customer regarding the deduction, call them and tell them it is coming and ask if they need any other specific documentation that you can include.  Mail the paperwork and use certified mail with a signature, or use a flat rate priority mail envelope.  

When you receive notification that they have the documents, call them right away to find out the status.  Do not get caught up in the game of sending the documentation two or three times – this is a stalling tactic.  Stay on top of the situation and resolve it as quickly as possible.  You also can fax or email the documents for quicker resolution.  Make sure the customer sends the payment immediately – do not allow another 30 days or any more time to pass.

If you have a customer who takes frequent deductions, you will want to note this on their account and maybe re-evaluate your credit terms with them.  You can incorporate something into your credit policy in regard to deductions and make sure your customers are aware of this policy.  You can ask that all deductions be approved and be required to have accompanying documentation to support them when they are deducted from a payment.  

This way if these things don’t happen or you have a customer over 120 days past due who sends a check with deductions, you have something to fall back on.  Some customers who are having financial problems will take deductions on old invoices as they pay them in order to appear less delinquent.

Bio

Michelle Dunn is an award winning author and columnist frequently featured in the Wall Street Journal, CNN and Forbes. Look for her newest book being released in May by Wiley Publishing titled, "The Guide to Getting Paid, weed out bad paying customers, collect on past due balances and avoid bad debt, available for pre-order now on Amazon.