In this article, learn about:
Claims deductions and allowances
Key differences between the two
Disputing deductions and allowances
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Whenever a supplier receives an invoice back from a retailer, it is common for amounts to be deducted from the expected invoice amount. Sometimes these adjustments are valid, and sometimes they are not.
Retailers apply deductions after receiving an invoice from the supplier. In contrast, allowances are terms that are established with a retailer upon the creation of a supplier agreement. These are either removed from an invoice by a supplier or removed from a payment by a retailer. The validity of the adjustment determines whether or not the supplier may be able to dispute the revenue loss caused by these adjustments.
What is a Deduction?
Deductions (sometimes also called chargebacks) are most commonly associated with shipping shortages. When the retailer receives less product than they ordered from the supplier, the retailer deducts a percentage from the invoiced amount.
The ability to dispute a deduction hinges on whether or not the deduction is valid. Invalid deductions can and should be disputed.
For Walmart, it can be helpful to think of the two main types of deductions being Claims Deductions and Earned Deductions.
Claims Deductions occur when Walmart claims that the invoice received from the supplier is incorrect. These deductions are based on a list that is held in the retailer’s EDI 820 specs. Depending on the validity of this claim, the supplier may be able to dispute the loss of revenue associated with the deduction.
The most common codes associated with invalid Claims Deductions at Walmart are:
Earned Deductions are planned deductions that the supplier includes in the invoice before sending it to the retailer. Allowances fall into this category.
Related Resource: Avoiding Common Walmart Deductions
For Amazon, earned deductions/allowances are referred to as Co-Op discrepancies. Negotiated Exceptions, Agreement-Based discrepancies, and Backup Report discrepancies are the most common disputable discrepancies that arise from Co-Op deductions. Suppliers can view, manage, and dispute deductions/chargebacks from Amazon in their vendor portal.
Amazon’s most common chargebacks are:
Accruals
Vendor Funded Sales
Discounts
Straight Payments
What is an Allowance?
Whereas a deduction is revenue lost due to an issue with the shipment the retailer received, allowances are reductions to the invoice that are previously agreed upon between the retailer and the supplier. Allowances are a strategic business decision.
Related Reading: Walmart Agreements and Allowances Cheat Sheet
For example, if the retailer chooses to buy in bulk (which benefits the supplier), then the supplier will, in turn, provide discounts for the retailer in the form of an allowance agreement.
Often, the supplier includes the allowance deduction on the front end, taking the allowance deduction out of the invoice before sending it to the retailer. If the supplier does not include the allowance in the invoice, then the retailer will add the allowance on the back end of the process in the form of an allowance deduction off of the payment.
Sometimes allowances go wrong when the retailer adds invalid allowances to the bill. In this instance, it is beneficial for the supplier to dispute this deduction. For Walmart, disputable allowance codes are: 46, 50, 51, 52, 53, 54, 55, 56, 57, 59, 67, 68, 69, 70, 150, and 151. However, it is rare for Walmart allowances to be invalid or incorrect.
Amazon allowances, often called Co-Ops or Contra CoGS, can frequently go wrong due to Amazon’s heavily automated processes. Additionally, Amazon’s Co-Ops cover a wide range of charge types. These can become jumbled both on the retailer’s end and the supplier’s.
Amazon Co-Ops fall under three main categories:
Marketing and promotion
Freight (typically Collect)
Damage
Disputing Retailer Deductions vs. Allowances
Whether or not a supplier can dispute deductions or allowances depends on the validity of those adjustments. If an allowance or deduction is valid, then a dispute is likely to waste the suppliers’ time, and it is less likely to be approved by the retailer.
If an allowance or deduction is invalid, then a dispute is the most logical course of action for a supplier. It is imperative to know what necessary documentation is required to successfully dispute a deduction or allowance.
Disputing Walmart Deductions vs. Allowances
With Walmart, suppliers can dispute deductions in APDP (Accounts Payable Dispute Portal) in Retail Link. APDP handles the majority of disputes related to shipping and freight, whereas High Radius handles the majority of compliance disputes. Walmart only reviews and/or approves disputes of deductions that are less than two years old, so it is important to know exactly what is required for a successful dispute and to begin the process in a timely manner.
Walmart’s allowance deductions are rarely invalid; however, it is important to know the avenues to pursue to dispute allowances with Walmart. Just as with deductions, suppliers will dispute allowance deductions through APDP. Some key documentation that will be required for the dispute would be anything related to the shipment, such as Proof of Delivery (POD) and/or Bill of Lading (BOL).
Related Resource: How to Dispute a Walmart Deduction
Disputing Amazon Deductions vs. Allowances
The most common disputes with Amazon can be managed through the Operational Performance Dashboard on Vendor Central, and all disputes are handled by the Vendor Chargeback Dispute Management (VCDM) team. Amazon also has a 30-day window in which suppliers can resubmit a previously denied dispute.
Related Resource: How to Dispute an Amazon Chargeback
Unlike Walmart, Amazon’s allowances (or Co-Ops) are frequently in error. It is imperative that the supplier be prepared to dispute Amazon allowances and know exactly what documentation is required for a successful dispute. Suppliers can dispute allowances through Dispute Management in Vendor Central.
Related Resource: How to Dispute Amazon Co-Op Deductions
The Impact of Retail Deductions and Allowances
It is helpful to view deduction and/or allowance codes as signals for the supplier to audit their processes. For example, if a supplier is receiving an abnormally high volume of adjustment code 27 from Walmart, that could be signal to reexamine carton quality and consider upgrading.
Deductions signify that something has gone awry and needs improvement, while allowances are a sign of business as usual. However, both deductions and allowances can sometimes be incorrect, and it is in the supplier’s best interest to dispute these errors in a timely manner.
SupplyPike’s software helps suppliers dispute deductions and incorrect allowances as they arise. SupplyPike removes the monetary threshold for disputes, helping suppliers dispute both deductions and allowances. With SupplyPike, suppliers can dispute deductions without having to go through Retail Link or Vendor Central, saving valuable time and energy with auto disputes.
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