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.

There is something about the last few weeks of the year that makes everyone want a reset. Sales is thinking about new distribution. Operations is thinking about capacity. Finance focuses on cash, margin, and how closely the numbers align with plan. And deductions?

You know the drill. Everyone celebrates the holiday numbers: “Record Black Friday!” “Best Cyber Week ever!” “Christmas sell-through is way ahead of plan!” Then Q1 rolls around. Finance closes the books.Suddenly, the story changes

Year-end is when everyone wants something from you. Finance wants clean books. Supply chain wants frozen forecasts. Sales wants that last push to hit the number. Leadership wants a tidy story for the board. Somewhere in the middle of all this, deductions sit in a report tab called “later.”

If you work in finance, accounts receivable, or accounts payable, you’ve probably seen the promises in your inbox: “Let artificial intelligence handle your deductions.” “Automate disputes end-to-end.” “Close more claims with fewer people.”

Here’s a slightly uncomfortable truth: retailers are already benchmarking you. They benchmark your on-time performance, your fill rates, your chargebacks, your defectives, and your responsiveness when something goes wrong. Programs like On-Time In Full (OTIF) can assess penalties of around 3% of the cost of goods for shipments that are late, early, or incomplete. Some retailers’ chargebacks range from 1–5% of gross invoice when suppliers don’t follow routing guides. 

On paper, your deduction report looks clean. You see totals by retailer, maybe a breakdown by code or reason. Someone tells you, “We’re running at about 2% of sales in deductions—pretty typical.” You nod, move on to the next slide, and feel reasonably at peace.

Holiday returns are here—and how you classify them decides whether you pay for them later. You must separate true defective  products from shipping damage  or policy abuse  (like “used once, then returned”) before retailers reset your “excessive defectives” rates. What’s at stake:  the wrong label today can lock in higher return allowances or additional chargebacks for months. Fictional example (for illustration):  A home electronics brand treated all returns as “defective.”