Retailers and their vendors sometimes engage in an uneasy dance around chargebacks and rebates, which can lead to confusion, frustration, and – in some cases – fractured business relationships. The so-called “cost of doing business” can be quite expensive for some industries.

Enter the relationship guru: Jessica Butler. She is the founder of Attain Consulting Group, a New Jersey-based deduction and chargeback management advisory firm. Butler says an emphasis on “deduction reduction” can improve relationships among vendors and retailers, while eliminating financial waste.

“Many vendors want to refer to deductions as the cost of doing business,” Butler says. “Others view the deductions as a profit center for the retailers, and they resent them. While both of these opinions might have elements of truth, I feel that there is also a large group of deductions which are controllable by the vendor and are often the result of poor internal processes. Both retailers and vendors would be happy to eliminate these.”

Butler believes communication is an essential element in forging solid relationships. Industry terminology in this area can lead to massive confusion, cost overruns, and bad feelings among manufacturers and retail operators.

“This is a big issue for people in the industry,” Butler says. “Let’s say I’m Nike, and you’re The Sports Authority. I sell you shoes. I send you an invoice for $1,000 worth of merchandise. You send me a payment of $900 and tell me that you are deducting or “charging me back” $100 because you say I didn’t do XYZ with regard to your procedures for receiving products for sale at your stores.

“Some people call this $100 shortage a ‘chargeback’; others call it a ‘deduction.’ You have to be sure you’re using the same language and talking about the same thing before you can come to any understanding of what will benefit your business and your customers.”

Butler says the chargeback process can be divided into three distinct groups:

Intentional or sales-related deductions. These are the discounts, volume rebates, and other types of offers that serve as a lure for consumers to spark sales. “Buy one, get one free” falls into this category. Intentional deductions are generally pre-negotiated and pre-approved by both the manufacturer and the retailer. Sometimes a sales associate makes an agreement but does not notify the accounting department, so when the check comes in with the deduction, it’s a surprise. That can be a big, time-consuming problem.

Preventable or compliance-related deductions. Every retailer has a compliance manual or routing guide that tells manufacturers how to ship items for sale. These directives may include “how to label a carton” or which preferred carriers to use for delivery. Each retailer has its own set of rules, but manufacturers (e.g., Nike) have to know the particulars of each of their customers or face a series of potential deductions to their invoices. It’s like being nibbled to death by ducks, which Butler calls “the cost of doing business poorly.” If you find yourself in this position, it may mean it’s time to fix your business processes.

Unauthorized or administrative deductions. This third group of deductions includes those which may not be pre-approved or preventable. Defective product returns fall into this category. You may not have negotiated an agreement for these up front, and they are almost impossible to completely prevent. Even if you have negotiated a return allowance for a defective product, vendors may receive additional returns above the allowance amount. Shortages are another example of this type of deduction.

The objective when dealing with unauthorized deductions is quick resolution through proper processes and documentation to support your position.

“If vendors include the allowable return price for goods when they issue an RA (return authorization) to their customer, they will have a greater chance of having the deduction come in at the agreed-upon price,” Butler says. “This can prevent disputed deductions.”