You know the feeling: sales look healthy, shelves are full, and yet the cash line keeps getting nibbled to death by deductions. Excessive defectives are one of the sneakiest nibblers. Because it sounds like an operational issue—damaged goods, returns, reclamation, the messy stuff that happens after the sale. And yes, some of it is real. But a surprising amount of it is mis-coded, duplicated, out-of-window, or simply not yours to pay.

Markdowns feel simple in the store: price goes down, product sells through. But financially? Markdowns can turn into a messy conversation about who funds the margin gap—and whether the claim you received matches what you actually agreed to.

McKinsey reports that consumer packaged goods (CPG) companies invest about 20% of revenue in trade promotions, and that a large share of promotions fail to generate profit (their article cites research indicating 59% lost money globally and 72% in the United States). So when a promotional allowance is misapplied, duplicated, or “missing documentation” later appears as a deduction… it’s not a rounding error. It’s your margin getting billed twice.

If you’ve ever seen an “excessive defectives” fee and thought, Wait… since when are we paying a subscription for returns? — You’re not alone.

Retail compliance used to feel like a binder on a shelf. Now it’s more like a moving target—with three versions. A routing guide gets updated. A portal rule changes. Someone forwards an email amendment. Your third-party logistics provider (3PL) has a checklist that’s nearly identical. Meanwhile, your warehouse is just trying to ship clean, on time, every day.

“Excessive defectives” fees have a way of showing up like a tax. Not because your product suddenly got worse overnight—but because returns, handling, and attribution get messy after peak season. And February is when the mess hardens into numbers that hit your remittance.

February can feel… quieter. No holiday promo chaos. No year-end close panic. Just a brief window where you can finally look up. And that’s exactly when a lot of suppliers discover the problem: deductions have been stacking up in the background, hiding in offsets, short pays, and messy remittance detail. One industry paper from the Return Value Chain Federation (RVCF) put it bluntly: depending on the industry, customer deductions can reach 5%–15% of revenue, and even “typical”

Tariffs don’t just change costs. They change deductions. Because the moment your costs move, you’re in a race between reality and the retailer’s system.

February is when the holiday glow fades… and the math gets loud. You shipped hard in November and December. Sales looked great. Then the “after” shows up: returns, refunds, disputes, and retailer chargebacks that quietly claw back cash when everyone’s already sprinting into the new year.

Last year, you could win a dispute with a decent note and a screenshot. This year, that same package gets denied because it’s missing the lot code, the timestamp, the condition photo, and the proof of delivery. It feels personal. It’s not.

There are deductions you disagree with. And then there are deductions you shouldn’t even be looking at—because you already dealt with them.

January is when retailers try to get their house back in order. They’ve got seasonal inventory to clear, new sets to build, and demand that usually cools off after December. One study found retail spending drops an average 22.4% between December and January.

Q1 is the quarter where everyone asks the same question: “Did we actually make money on that holiday volume?” Because the truth usually arrives late—through promotional billbacks, pricing deductions, and post-audit debits that land weeks (or months) after the product shipped. NRF’s Retail Monitor data showed 2025 holiday sales (Nov. 1–Dec. 31) grew 4.1% . That’s a lot of invoices, a lot of promotions, and a lot of opportunities for the math to drift. And drift is exactly how

Learn how to tackle defective deductions in Q1 returns. Stop losing money to defective deductions with our expert guidance and boost your margins.

1) Split-shipment confusion Holiday fulfillment is messy. Partial shipments are common. The dispute comes when the customer (or retailer’s system) treats “partial” as “missing.” What to save:  shipment IDs, carton tracking, carrier scans by package, and timestamps showing each leg of fulfillment. 2) “Porch claims” and delivery disputes Package says “delivered.” Customer says “never received.” Retailers increasingly push for faster resolutions to protect customer experience—th

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The first two weeks of January are when finance teams do something heroic. They take a year of real-world chaos—short shipments, pricing updates, promotions, returns, compliance issues—and force it into clean financial statements.

If you sell into retail, January is when the “customer experience” turns into a finance problem. Returns are the obvious headline. But the sneakier issue is what rides along with returns: disputes, claims, and deductions that show up weeks later on the remittance—often coded in ways that make them hard to validate quickly.