CFO Playbook: Turn Deductions Into Growth Fuel
- The HRG Team
- 7 days ago
- 4 min read
If you’re a chief financial officer (CFO), you probably have a sixth sense for where money hides.
You can sniff out bloated trade spend, slow-moving inventory, and overhead creep from a mile away. But there’s one place even sharp finance leaders quietly overlook: the deduction line.
Not the neat little summary line on your dashboard—the real deduction story hiding in accounts payable (AP), retailer portals, and scattered spreadsheets.
Here’s the uncomfortable truth: many brands are giving up low single-digit percentages of gross sales to deductions every year. On a $500 million business, even 1–2% is a multi-million-dollar “ghost spend” that never shows up as a featured line item on the budget. It’s just… gone.
What if that money didn’t have to be gone? What if it could fund growth instead?
Let’s walk through how to turn deductions from a cost of doing business into growth fuel.
The invisible budget living in your AP ledger
Most companies treat deductions as a clean-up job:
Invoices go out
Retailer takes a short pay or a chargeback
AP codes it
Maybe someone disputes it… when they have time
Over the course of a year, those “we’ll deal with it later” moments snowball. Freight claims, compliance penalties, price discrepancies, post-audit debits—they all blend into one noisy bucket.
But if you step back, that noisy bucket is actually an unapproved budget:
A budget for retailer errors no one challenged
A budget for compliance penalties that could have been prevented
A budget for post-audit deductions that showed up long after the quarter closed
In other words: money that could have been spent on innovation, pricing strategy, or even just protecting margin—quietly reassigned by inaction.
Step 1: Treat deductions like a portfolio, not paperwork
Right now, deductions might look like a long list of transaction IDs and codes.
For a CFO, that’s useless.
Instead, think of your deduction universe as a portfolio you need to segment:
Recoverable deductions
Retailer system errors
Misapplied rates, allowances, or terms
Duplicate or double-dipped deductions
Preventable deductions
Compliance fines tied to fixable process issues
Repeated shortages, labeling problems, or timing misses
Truly valid deductions
Legitimate freight, funding, or agreed allowances
You don’t need to be in the weeds on every single claim. But you do need the roll-up: “How much of this is recoverable, preventable, or just the cost of doing business we’ve already agreed to?”
That view changes the conversation from “we lost money” to “we have a specific pool of money we can recover and a specific set of leaks we can fix.”
Step 2: Build a simple deduction funnel
Let’s take a fictional example—Harbor Harvest Foods, a mid-sized packaged foods company. (This is a made-up company, not a real HRG client.)
Annual sales: $250 million
Total annual deductions: 3% of gross sales = $7.5 million
That number feels big. But most teams don't know what’s inside it.
Now break it into a funnel:
Total deductions: $7.5M
Recoverable deductions (say 20%): $1.5M
Preventable deductions (another 30%): $2.25M
Truly valid deductions (the rest): $3.75M
Do the percentages move in real life? Of course. Every brand and retailer mix is different. But even conservative numbers show something important: there is often a meaningful pot of money that can be recovered and an even larger pot that can be reduced over time.
For Harbor Harvest Foods, recovering just half of the “recoverable” bucket puts $750,000 back on the table. Tightening processes to cut preventable deductions by even a third could free up another chunk over the next year.
That’s not a rounding error. That’s capacity.
Step 3: Make recovery someone’s job, not everyone’s hobby
Here’s where things quietly break down.
In many organizations, deduction recovery is:
Half owned by AP
Half owned by sales
Occasionally owned by finance
And fully owned by… no one
So the highest-paid people in the company end up debating whether a claim from 11 months ago is “worth chasing.”
A better model:
Finance (CFO / Controller): Sets the strategy and targets
“We want to recover X% of valid claims and reduce preventable deductions by Y%.”
Dedicated deductions or compliance team: Owns the work
Research, dispute packages, retailer follow-up, and root cause analysis
Sales / Customer teams: Own the conversation with buyers
“We’ve identified repeated issues in these areas; here’s how we’re fixing them and what we need from you.”
When recovery is someone’s full-time job—with clear metrics and accountability—it stops being background noise and becomes an earnings lever.
Step 4: Decide now how you’ll use recovered dollars
This is where it gets fun.
Recovered money is easy to lose in the noise if it just flows into general margin. Smart CFOs pre-assign it.
For example, you might say:
“The first $500,000 we recover funds a pricing or pack architecture project.”
“Anything above that funds innovation or marketing in our top two retail customers.”
“A portion offsets tariff or freight volatility so we don’t have to raise prices as quickly.”
In our fictional Harbor Harvest Foods story, leadership decides:
The first $750,000 from improved recovery funds a new product line at a strategic retailer
The next $500,000 funds systems and process improvements to reduce future compliance hits
The message to the organization changes from:
“We’re chasing old money.”
to:
“We’re funding our own growth.”
That shift matters. It creates energy and alignment instead of burnout.
Why this matters more than ever
Retailers are not getting less sophisticated with chargebacks and audits. Systems are faster. Policies are tighter. Portals multiply.
If you’re not actively managing deductions:
Retailers are effectively writing their version of your P&L
Your true margin is lower than the spreadsheet suggests
You’re walking into line reviews with less leverage than you think
You don’t need a perfect system overnight. You just need to acknowledge that your deduction line is probably one of the biggest ungoverned “budgets” in the building.
And that’s a CFO problem… and a CFO opportunity.
A quiet next step
If you’re looking at your deduction line and wondering, “How bad is this, really?” you’re not alone.
Teams like HRG spend their days living in this world—sorting out recoverable money from true cost and helping brands build a smarter, more proactive recovery strategy.
Even a quick, informal benchmark conversation can help you see whether you’re leaving meaningful growth fuel on the table.
