By Joel Sauve, Vice President of Audit and Solutions Operations
In part one of this series, we reviewed how to establish a successful prevention program. In this installment, we’ll dive deeper into the complexities of promotions, the issues that often arise and why, and how a prevention program serves to mitigate or avoid them altogether.
Behind the curtain
Promotions involve complex agreements with many steps to execution. Even the smallest mistakes in the process will cost the store money or tie up its capital. With commonly small profit margins (grocers on average are at 1-2%), every dollar lost is significant.
Correcting errors early supports on-time payment, while mitigating or preventing profit leakage.
Supplier-funded promotions
The examples and insights we’ll share in this installment are applicable across promotional types including but not limited to:
- Temporary retail reductions (supplier pays difference in sale price)
- Buy-one-get-one (supplier pays for ‘free’ units)
- Coupons and rebates (supplier reimbursement)
- End cap displays or ads (supplier marketing or extra space payments)
These ‘win-win’ initiatives are often significant percentages of supplier sales budgets to build brand loyalty and move more product through stores.
Why errors occur
A single promotion can have many moving parts like which items and sizes, what is sold where, the discount rate, start and end dates, and how the supplier will compensate the retailer. Larger chains may run hundreds of promotions at once across thousands of products.
Managing these promotions also requires multiple cross-functional teams including buyers, sales, accounting, IT, et al., as well as various computer systems. Human error, miscommunication, and system limitations pose inevitable risks as well.
- High volume and complexity lead to overlooked or incorrect entries
- Manual data entry leads to typos and omissions
- Poor coordination and lack of clarity lead to misalignments
- Timing gaps lead to inconsistencies in reconciliation
- Multiple systems lead to mismatched data without proper integrations
Any or all the above can lead to leakage and cashflow suffers when a store must wait months or even years to reconcile and be paid. Next, we’ll look at the four main stages of a promotion, what can go wrong, and how to mitigate or prevent these common challenges to ensure store finances remain healthy.
Stage one
The planning stage is where promotions and funding agreements are set. Common issues at this stage include inaccurate or incomplete deal entry, undocumented or external communications, unclear or miscommunicated terms, and volume planning mistakes. These errors are understandable given the rush to release and high volumes often associated with these promotions.
Errors at this stage means building on a poor foundation with ramifications in subsequent stages. For example, a BOGO deal isn’t entered correctly, a store advertises and gives away thousands of free items anyway, and the supplier doesn’t automatically know to pay for them. The retailer may not realize the error until much later (if at all), which means the store effectively paid for the promotion itself, cutting directly into profits. If the money is ever recovered, significant time will likely pass where that money is missing from cashflow.
A prevention program mitigates or reduces these errors by providing:
- Standard deal forms and checks
- Upfront validation by systems
- Cross-team review process
- Supplier communication improvements
- Payment assurance for positive cashflow
Stage two
The promotional execution and tracking stage is the duration of the sale. Shelf prices are updated, shoppers are offered deals, and point-of-sale (POS) systems track all promotional sales. Common issues at this stage include improper setup, incorrect tracking, inventory mismatches, and complex overlapping promotions. These errors usually occur due to errors made in stage one.
Errors in stage two lead to not getting paid and supplier disputes over promotion performance. If all five colors of a cell phone case are on sale and sold at a reduced retail but only four colors are setup correctly for funding, that represents 20% of the potential funding that may not be received. In other cases, a retailer may execute incorrectly (like going beyond scope of the promotion) resulting in surprise charges that a supplier will unquestionably dispute and refuse to pay for.
A prevention program can solve these all-too-common challenges with:
- System testing and pilot runs
- Real-time monitoring and alerts
- Consistent coding
- Training and clear instructions
- Improved customer and supplier satisfaction
Stage three
The invoicing, deductions, and chargeback stage is where money is collected. Once a promotion ends, the retailer collects funding from its supplier in one of two ways: by invoicing the supplier, or by using a deduction in payments owed to the supplier. Common issues at this stage include missed billing, incorrect amounts, duplicate charges, late submissions, and manual processing errors.
Errors at this stage typically occur due to misaligned and missing data between sales, contracts, and invoices. If the promotion wasn’t tracked well in stage two, a lack of confidence in what to charge can occur leading to guesswork and mistakes. Other times, disparate systems result in misses or double counts. And historically, retailers often take extensive time to settle which leads to additional human error.
A prevention program can:
- Automate matching systems
- Integrate promotion and finance data
- Duplicate check controls
- Provide timely reminders and accruals
- Clear backup documentation
Stage four
In the final matching, reconciliation, and dispute resolution stage, accounting ensures supplier invoices, retailer deductions and original terms match. Common issues at this stage include misalignment and disputes, delayed resolution, resource-intensive process, and relationship strain between the retailer and supplier.
Errors at this critical stage often result from errors made in previous stages. The result is each side seeking evidence to support its claims, with promotional complexity working against both. Often, those working on the problem are not the same people who set up the promotion, so there’s little or no first-hand context or perspective to aid in clarification.
Once again, a prevention program could help avoid these challenges with:
- Real-time and frequent reconciliation
- Collaborative systems
- Clear contract language and policies
- Dedicated dispute resolution process
- Optimal cashflow and seamless transition to the next promotion
Final thoughts
The benefits of prevention are not limited to dollars recovered or protected. They also show up in how teams work together.
When fewer issues reach the dispute stage, supplier conversations become more collaborative, internal teams spend less time resolving historical issues, and capacity shifts toward higher-value activities with teams operating with greater alignment because fewer problems require downstream handoffs.
Retrospective audit recoveries provide insights, and prevention operationalizes them. Companies seeing the strongest results use recovery to identify root causes, then feed those insights into prevention programs that stop repeated issues before they occur again.
Next month in part three of this series, we’ll take a deeper look at the key performance indicators that tell when prevention is working. Be sure to subscribe so that you don’t miss it.
To learn more about how Cotiviti helps companies stand up or optimize prevention programs for our clients with SmartP2P Alerts™, read our fact sheet, reach out to your primary representative, or share your questions at answers@cotiviti.com.
About the author
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Joel Sauve is Vice President of Audit and Solutions Operations at Cotiviti, where he draws on more than 30 years of experience leading audit engagements and technology operations to guide global teams through complex, ever-changing business landscapes. He's passionate about driving value for clients, improving processes, and delivering insights that allow businesses to thrive. |
