The solution is to research and resolve deductions of significant value in a fast and efficient manner. AI is the key to achieving this solution. Our focus will be on the elements of deduction resolution that can be automated with AI. Learn from our order-to-cash expert, John Salek about how AI automates:

1. The AI Advantage In
Deductions Processing
NOV 19, 2020 | 10:00 AM PST

2. • Introduction
• Deduction Processing Overview
• AI Powered Digital Automation for Deductions
• Customer Success Story
• Conclusion
• Questions
Agenda

3. 3
Introduction
• Deductions (aka chargebacks, short pays) arise when a
customer does not receive your product or service as
ordered or feels the invoice is incorrect. They may also
be incurred as a way for the customer to receive a
payment due them (usually trade promo funding). They
are incurred when the customer pays less than the full
invoice amount.
• If the customer is correct the deduction is removed from
the AR ledger via a credit memo or write-off. If not, the
disputed amount must be collected to avoid erosion of
profit.

4. 4
Introduction
Deductions can have a substantial Financial and Customer impact:
• Up to 2-3% gross margin erosion
• Huge productivity penalties to Cash Application, Collections,
Customer Service, Sales, Logistics resulting in higher cost and/or
reduced performance
• Serious degradation of the Customer Experience
• Employee demotivation
• Elevated AR – total and past due
• Potential over-statement of financial results (net sales, profit,
assets,) and large one time hits to earnings to clear backlog of aged
deductions and disputes

5. 5
Deductions Processing Overview
Deductions can be a low value activity:
• They are valid 95+% of the time
• Volumes can be huge: thousands per month
• Cost to research & resolve can be large - how much do you want to
spend to issue credit memos?
• Payback may seem small: recover <5% of all deductions
• However, if your “policing” is inadequate, the problem will grow
If deductions are processed efficiently & effectively, the payback in margin,
productivity and customer satisfaction can be a multiple of the cost incurred

6. 6
Deductions Processing Overview
Scope: Identification thru Clearing from AR Ledger
Process Flow
• Creation in AR Ledger & assigning reason code in Cash Application, with
automatic write-off for small balance deductions
• Routing to designated Resolver
• Research and Resolution (is deduction valid or invalid?)
• If invalid, route to Collector for recovery from customer
• If valid, clear from AR ledger via credit memo or write-off
Key Functions:
• Tracking of every dispute from creation to clearing
• Categorization by type/root cause (< 20 types) to drive Perfect Order Index
(POI) improvement
• Matching of debits and credits & clearing from AR Ledger
• Compiling Operational Metrics & Reporting
• Analytics to drive process improvements

7. AI Powered Digital Automation can:
• automate 70-80% of manual Deductions Processing work
• transform Deductions Processing from a costly low value activity to a high
value one that recovers revenue & profit of 3 - 6x its cost, and improves the
POI and the customer experience
• Provide total, consolidated view of all deductions from multiple ERP’s
• Digitally store relevant documents
AI Powered Digital Automation for Deductions

8. 8
AI Powered Digital Automation for Deductions
Cash Application Digital Assistant Automation:
• Extract remittance data from multiple customer
sources/documents in multiple formats
• Automatically create deductions to be routed for resolution
(customer number, invoice # & value, payment # & value, deduction
# & value, dates, reason code, assigned resolver, etc.)
• Establish unique record for every individual deduction
• Extract reason code from customers’ vendor portal, remit advice,
debit memo, email, etc. & assign it to the deduction record.
“Unknown” reason code is default.
• Store digital images of all documents

9. Deduction Processing Digital Assistant Automation:
Routing – of deduction to designated Resolver based on deduction reason code:
• Formatted message stating time period for resolution, define resolution (credit
memo or routing to Collector or alternate Resolver)
• Full deduction record, including document images
• Allow re-routing from one Resolver to another
• Route credit memo request thru Approval Hierarchy
Tracking – of every deduction
• Add every deduction record to open deduction file at “Creation” stage
• Move deduction to “Closed” file only when it is removed from Open AR ledger
• Record and change Resolver based on routing
• Send reminder notice to Resolver when allowed time period for Resolution
expires. Execute Escalation Protocol to Resolution Hierarchy as time elapses
on unresolved deduction
• Reporting – see “Metrics” section
9
AI Powered Digital Automation for Deductions

10. Deduction Processing Digital Assistant Automation:
Automatic Small Balance Write-Off – of low value/recoverable deductions :
• Auto write-off of deductions whose value is below threshholds
• Accumulate all auto write-offs in a file. Ability to sort deductions by customer, value
& reason code. This will identify recurring issues for collection and/or correction
Clearing from AR ledger in Cash Application or Collections
Match & clear credit memo or payment with open deduction via deduction #, or original
invoice #
Robust Query Capability
To respond to post audits from customers or their agents
10
AI Powered Digital Automation for Deductions

11. Deductions – Metrics & Analytics
Operational Metrics:
• Throughput: Input, output, change in backlog quantity and age
• Backlog quantity and age by reason code and responsible party
• Accountability: throughput, backlog, effectiveness by department & person
• Effectiveness: recovery %, reduction in high frequency dispute types
Analytics: Causality to drive Order Fulfillment and Invoicing Quality:
• By type
• By customer
11
AI Powered Digital Automation for Deductions
Customer profitability & deduction profiles can identify the few customers causing
the majority of deductions, setting the stage for individual correction measures.

12. 12
Benefits of a Well Executed
Deduction Management Process
Higher Revenue & Gross Margin via lower invalid deductions
Increased Employee Productivity & Morale
Improved AR aging profile and DSO
Improved Controls over Revenue & Asset Valuation (and
prior period adjustments)
A better Customer Experience
“Freed up” Sales & Customer
Service Resource
Improved Customer
Experience/Satisfaction
Customer
Loyalty
Greater
Market Share
Increased Revenue
& Profit

13. 13
Problem Overview
AHA launched eCommerce site
ShopCPR to sell CPR equipment and
classes online.
Customer Value
• Deployed Emagia
• Digital
Customer Success Story

14. Conclusion
AI Powered Digital Automation of Deduction Processing can:
• Transform a low value activity to a high value one
• Increase productivity by 70-80%
• Enable Deduction Processing to generate a net profit vs being
just a cost center
• Capture root cause data to power improvements to the Perfect
Order Index
AI Powered Digital Automation tools can bridge the gap by
transforming many manual activities into “touchless” activities

15. Questions

16. If you have any questions or comments
about this session, please let us know
in the chat box or write to us at
info@emagia.com
Next Emagia Master Class Session:
Topic: Digital B2B Credit Best Practices
Date & Time: Thursday, 3rd December, 10AM PST
Book Your Seat Today !
Orders
Credit
Cash
Application
Collections
Deductions
Payments
Invoicing