About Deduction Management

The deduction management process can be separated into two phases: payment application and deduction resolution.

Payment Application

Deductions are initially generated when payments are applied to customer entries in the Payment Application window. If you indicate that you do not want a payment to be applied to a full ledger entry amount, a deduction is automatically generated for the difference. For example, if you select a $500 invoice for payment application but indicate that only $300 will be paid, a $200 deduction line will be automatically created by the program.

When a deduction is created, you must assign a type to it. A deduction's type determines the record to which posting occurs. There are 3 deduction types:

• Unresolved deductions are deductions for which a dispute over the deduction's validity exists between the customer and the company. These deductions will be resolved at a later time after additional discussion between the two parties has taken place. They can be posted to a special customer record that is set up for unallowed deductions or they can remain on the original customer record and be tagged as "unresolved".
• Writeoff deductions are typically taken due to a customer's belief that the full invoice amount should not be paid. They are posted to General Ledger accounts.
• Accrual Plan deductions are taken in response to accrued rebate amounts that are due to the customer. They are posted to accrual plan records.

You must also indicate whether you want to allow any writeoff or accrual plan deductions that are created. It is not possible to allow unresolved deductions.

When the payment is posted, deduction amounts are posted to different accounts, depending on their type. It is possible to transfer unallowed deductions to the ledger for a customer record that has been set up solely for the purpose of storing unallowed deduction amounts. Although not an actual customer, this record is necessary so that the unallowed amounts can be posted to customer ledger entries. This could create the issue that the actual disputed amount is moved away from the original customer for the time being. Any payment reminders will not reflect this movement.

It is therefore also possible to leave all unresolved deductions on the original customer. On the payment reminders, these amounts are then flagged as "unresolved" and could also be filtererd out when creating the reminders.

Deduction Resolution

Depending on the circumstances surrounding a disputed deduction, it can take time before the company and customer are able to come to a resolution. If a deduction amount is particularly large, it may be that resolution is achieved for partial amounts of the total deduction.

Unallowed deduction amounts are reconciled in the Deduction Management - Resolution window. In this window, you select an existing unallowed deduction entry, then indicate the type of resolution you wish to take against it. If the company has decided to allow the deduction, it can be posted to either a writeoff G/L account or an accrual plan. If the company has decided that the customer must pay the deduction amount, it can be returned to the customer's ledger as a regular open amount.

Resolution lines can be entered for a partial amount of an unallowed deduction. This gives you the ability to resolve different parts of a deduction amount in different ways. If for example it was decided that the customer will pay half the deduction amount and the company will write off the other half, you could create two separate resolution lines for the unallowed deduction.