Trade Promotion Management: one grey… chequebook balancing?
We explored different aspects of Trade Promotion Management in our previous articles, but one topic is always at risk of being overlooked: Payments and Deductions. This is because Payments and Deductions are like sports: you are either passionate about it, or you don’t care for them at all. And there are only two groups of people in a CPG company that can be at all passionate about Payments and Deductions: Finance, and Key Account Managers. They have the shared interest of the chequebook for which they have responsibility and accountability. Let’s deep dive into Trade Promotion Management: one grey… chequebook balancing?
The Finance team is tasked with keeping track of the outcome of agreements the company signed with their retail partners. Each agreement is like they wrote the partner a check as it implies the company will ultimately owe them money. And when the retailer asks for that money – and they can do it in many different ways – they need to know whether the request was correct, how much the retailer has already received, and how much the company still owes them…
And they must be sure about their numbers, because it’s the Finance team’s responsibility to tell the company’s management, and the shareholders, all about the company’s liabilities (and writing checks creates a liability) while keeping everyone happy.
This usually causes friction between Finance and Sales teams: the way Finance sees things is that Sales go out there and make crazy agreements all the time. Because Sales do not see agreements as writing checks, what they do is strike deals based on different activities, promotions and different performances the retailer agrees to in return for a variable amount of money.
As the amount is almost always variable, Finance is tasked with forecasting what the final value will be. Keeping track of all the different types of promotions, variables and statuses can be a lot of work. But work that nonetheless needs to be done because at year-end shareholders want to know if there are outstanding liabilities.
What Finance wants to avoid is, given that many agreements are variable, they end up paying more than was expected due to an imprecise liability estimate. That’s money that comes right out of profit and nobody likes that! Finance ends up facing never-ending questions on how it happened and is forced to deliver explanations and specific causes. Never a good discussion. Finance knows that managing Payments and Deductions is not straightforward. There’s a little bit of art involved, and a whole lot of estimation. It only works if you can trust the people you worked with to formulate your estimate gave you the correct information.
Key Account Managers (KAMs) are the second group of people passionate about Payments and Deductions. They are the ones making agreements with customers. KAMs are assigned a budget for the retailers they manage at the beginning of the year, with the objective of increasing sales and decreasing spend. They are tasked with finding the best way to spend that money, a way that allows for the highest ROI. So KAMs work with the chequebook, too.
If equipped with the right TPM solution, one with a powerful chequebook functionality, KAMs can effectively keep track of agreements they made, of how much money they already spent plus what they have forecasted to spend, and how much they can still invest. For them, the advantage of having a solution that does this effectively is that they can focus on working on providing the best estimates possible.
Sometimes, KAMs may be tempted to reassign their budgets according to how they estimate consumption will be. But if they do it only in their heads, without the help of a solid TPM solution that can support them in the budget reassignment activity, it may spell trouble.
With the right TPM solution, they can really maximize sales and ensure they remain compliant with their targets, while the solution ensures their actual chequebook is up to date.
For those managing the relationship with the retail partner, knowing that the number is right, and thus being able to pay them on time, or to reconcile financial transitions quickly is the most important thing. When the retailer asks for money, they can quickly assess the situation and respond properly, instead of having to process a request over 2 to 3 months to arrive at the correct answer. Retail partners are happy as requests are processed faster and they are paid faster. For those many customers that don’t ask for money but choose instead to pay less of the invoice the company sent to them (or short pay), the balancing act should expend the least work possible – but the numbers must be as accurate as possible.
Benefits are for Finance people too, as when the time comes for them to step in, they can trust the numbers. One must recognize that the money with which Finance and KAMs are working are not small. Companies spend hundreds of millions or even billions of dollars a year just in one geography to finance agreements and contributions to retail customers. It means there are KAMs out there who control half a million dollars of spend. Their estimates have to be accurate as possible, as a small percentage difference can have a large impact on their chequebook.
Having the right TPM process in place, with the right solution to match, means having the right numbers in the right place. Finance and KAMs can be on the same page and able to really collaborate, fuel each other properly and trust each other, so the company can profit.
Without a good TPM solution, there will always be a need for countless phone calls, constant email exchanges; a lot of back and forth to come down to a number, shared information, that in the end may or not may be reliable. Instead of phone calls and emails, teams need a robust TPM system they can trust.
With collaboration and trust, accountability of both teams can be improved. They can finally feel in real control of what they are doing as they are no longer working in the dark. The process of chequebook balancing is quite complicated. Companies may fear that a TPM system may add to complexity instead of reducing it. The system has to ensure not only that the numbers are correct, but that the amount of time required to complete the process is shorter than before. With the help of artificial intelligence and intuitive screen designs and reporting, KAMs and Finance people can spend less time administrating Payments & Deductions and more time in front of their retailer partners.