The Supplier’s Year-End Health Check: Retail Deductions Edition
- The HRG Team
- 8 hours ago
- 4 min read
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.”
You and I both know what “later” means in December.
The problem is that “later” quietly changes your story:
It distorts your true margin
It hides recoverable money that could fund next year’s plans
It leaves you walking into Q1 line reviews with stale, incomplete data
So instead of adding yet another big project to the pile, think of this as a year-end health check—a quick set of vitals for your deduction position before you close the books.
Why deductions deserve a year-end checkup
Zoom out for a second.
NRF data shows total U.S. returns hit roughly $743 billion in 2023 and about $890 billion in 2024, with returns running in the mid- to high-teens as a percentage of sales.
Behind those returns is a parallel universe of:
Shortages
Pricing and cost differences
Compliance and routing penalties
Post-audit “true ups”
Depending on your category and retailer mix, it is not unusual for 2–5% of gross sales to flow through deductions and chargebacks in one form or another.
If you do not look at that universe before year-end, your income statement is telling you only part of the story.
Five “vitals” for a year-end deduction health check
You do not need a giant project plan. You need an honest snapshot.
Here are five practical “vitals” to grab before the year is over.
Vital 1: Deduction rate by retailer
Instead of looking at one global number, calculate a simple rate for your top accounts:
Deduction Rate = (Total Deductions ÷ Gross Sales) × 100
Do this by retailer for the last 12 months. Pull in:
Regular invoice deductions
Compliance and routing fees
On-Time In Full (OTIF) penalties (OTIF = On-Time In Full)
Post-audit claims from portals
You will almost always see that one or two retailers are driving most of the pain. That is where 2026’s focus needs to be.
Vital 2: Aging – how long have claims been sitting?
Next, look at aging:
0–90 days
91–180 days
181–360 days
360+ days
Ask a simple question:
“How much money is sitting in each bucket for our top two or three retailers?”
Anything over a year old is effectively frozen. Retailer dispute windows, internal attention, and documentation all work against you.
You may decide to pursue some older claims anyway, but at least you will be honest about what is realistically recoverable and what is essentially sunk.
Vital 3: Mix – what types of deductions are hitting you?
Break your year’s deductions into a few clean categories:
Supply chain / OTIF / routing
Shortages
Pricing / cost differences / promo disputes
Compliance / labeling / packaging
Returns / defectives / allowances
Post-audit and other “true ups”
Now look at the mix by retailer:
Does one customer hit you disproportionately on shortages?
Is another heavy on label or routing fines?
Are post-audit deductions clustering at specific times or events?
You are not just counting dollars; you are spotting patterns.
Vital 4: Actionability – what could you actually do about it?
This is where you move from math to decisions.
For each major category at your top retailers, ask:
Recoverable:
Do we have, or could we realistically find, the documentation to dispute this?
Are there retailer policies or past reversals that support our case?
Preventable:
Is the root cause in our own process, data, or execution?
Could we reasonably cut these deductions in 2026 with better discipline?
Accepted cost of doing business:
Are there items we have deliberately agreed to (for example, specific allowances) that we should treat as planned?
You will not eliminate every deduction. That is not the goal.
The goal is to separate “yes, we can fix this” from “we are choosing this” from “we missed the window.”
Vital 5: Readiness – are we set up to do better next year?
Finally, zoom out and look at the organization itself for 2026:
Ownership: Who truly owns deductions—Accounts Payable, finance, sales, a dedicated deductions team? If the answer is “kind of all of them,” you know the real answer is “no one.”
Service-level agreements (SLAs): Do you have clear expectations for how quickly claims are reviewed and disputed?
Tools and reports: Do you have at least one consistent view where retailer portals, enterprise resource planning (ERP) data, and post-audit activity come together?
Feedback loops: When shortages, compliance fines, or promo disputes spike, does that insight make it back to the teams who can actually fix the root cause?
You do not need a perfect system by January 1. But you want enough clarity that everyone knows:
Who is on point
What “good” looks like
What you want to change in 2026
A fictional example: Harbor Trail Home’s one-hour reset
Picture Harbor Trail Home, a fictional home goods brand. (This is a made-up example, not a real HRG client.)
In early December, their team blocks one hour for a “deduction health check” on their top two retailers.
They find:
Retailer A: Deduction rate of 2.2%, mostly shortages and routing fines
Retailer B: Deduction rate of 4.1%, heavily weighted to promo disputes and post-audits
$1.3 million in open deductions over 180 days old
No single owner—AP, sales, and supply chain all have pieces
They are not thrilled, but they are no longer guessing.
Coming out of the meeting, they set three realistic 2026 moves:
Assign a single deduction lead to coordinate across teams.
Run a deep dive on shortages and routing at Retailer A in Q1.
Tighten documentation and proofing for promotions at Retailer B before agreeing to new events.
Nothing heroic. Just focused.
Why one honest hour beats vague good intentions
The temptation at year-end is to wait for a perfect solution: new tools, new automation, new headcount.
In reality, one honest working session can do a lot:
It tells you whether your deduction problem is mild, moderate, or severe.
It shows you where your next dollar of effort will matter most.
It gives you a cleaner story for leadership and for your buyers.
At HRG, our team spends a lot of time living in that “what is really going on?” space—translating messy deduction detail into a clear picture and a practical game plan.
You can do the same internally. And if you ever want a second set of eyes, that conversation is always there.