You invoiced $50,000. The check came in at $46,200. Nobody is late, nobody is avoiding your calls, and the customer will tell you exactly why they kept the $3,800 if you go looking. That's a deduction, and it's now sitting on your aging with no obvious owner.
For a CPG brand selling through distributors, this is not an edge case. It's most of the aging. And it's the part of AR that collections training doesn't prepare anyone for, because the money isn't late. It's disputed.
Why collections can't fix it
A collections process asks one question: when are you going to pay? That question has no answer here. The customer has already decided they aren't paying that $3,800, they've told you why, and from their side the invoice is closed.
The question that actually needs answering is whether they were right. That takes three things a collections call doesn't involve: the backup file that explains the charge, a document of your own to check it against, and somebody who knows which of the two wins. Put a collections team on deductions and they'll do the only thing their process allows, which is to chase and then eventually write off.
The real deadline isn't your close
Every customer stops accepting disputes at some point. Some windows run a year, some run six months, and at least one runs 48 hours. When a window closes the balance becomes a write-off whether the deduction was valid or not, and nothing in your AR system will tell you it happened.
The four steps
Match it to the invoice
The remittance tells you a reference number and an amount. That reference is your key back to the invoice and, eventually, to the backup. Deductions that never get matched are the ones that sit on the aging for a year.
Find the backup
Almost nothing you need is on the remittance. Distributor backup arrives by email, usually weekly, usually only if you asked to be added to the list. Retailer backup lives in a portal. Get this part wrong and the rest of the process can't start.
Compare it to a document of your own
This is the actual work. A shortage goes against the bill of lading and the signed proof of delivery. A promo chargeback goes against the deal sheet. A terms discount goes against the invoice date on your EDI. If you can't name the document, you can't dispute the line.
Clear it or dispute it, then code it
Valid deductions get coded to the right account so trade spend lands where it belongs. Invalid ones get a dispute with the document attached. Both need to happen the same week, because step four is where the window starts closing.
Step three is the whole job. Everything else is logistics. If a brand tells us their deduction process is slow, it's almost always because step two never finished and nobody could get to step three.
Valid, invalid, and the pile in between
Deductions sort into three groups and the middle one is where the time goes.
Some are obviously valid. You funded a promotion, the customer ran it, they kept the money. Coding those correctly matters for your trade spend numbers, but there's nothing to argue about.
Some are obviously invalid. A duplicate fee, a charge for a store you don't ship to, an allowance applied to an item that isn't in the program. Rare, satisfying, and usually found by accident.
Most of them are in the third group, where you genuinely don't know yet. The charge is plausible, the backup is thin, and the answer depends on a document somebody has to go find. That uncertainty is the actual product of a bad deduction process, and it's why brands write off money they were entitled to. Not because they lost an argument. Because they never got far enough to have one.
Where the documents come from
Two of the four documents you'll need most often aren't the customer's. They're yours, and that's what makes some families hard to audit.
A shortage claim goes against your bill of lading and the signed proof of delivery. A promotional chargeback goes against the deal sheet, which means dates, retailers and per-unit rates. A compliance fine goes against the supporting report the customer is supposed to attach, and if they didn't, that's your first question. An early payment discount goes against the invoice date on your own EDI and the terms in your agreement, which is why almost nobody checks those: the remittance simply doesn't contain the data you'd need.
Keep all four retrievable by PO number. Not by date, not by customer, by PO. Every backup document you'll ever receive leads with a PO or a reference that maps to one, and a filing system organized any other way will cost you the window.
What good looks like without adding headcount
Run it weekly, not monthly. Distributor backup arrives weekly and the fastest dispute window in the channel is measured in hours, so a monthly close cadence misses deadlines by design.
Sort by family before you sort by size. A $400 promo chargeback with no authorization is a better use of an hour than a $4,000 reclaim credit that's almost certainly valid. Size tells you what's interesting. Family tells you what's winnable.
And track the write-offs by reason. Not the total, the reason. If most of what you wrote off last quarter aged out rather than lost on the merits, you don't have a dispute problem, you have a calendar problem, and those get fixed differently.
Common questions
What is a deduction in accounts receivable?
It's the gap between what you invoiced and what the customer paid, where the customer took the difference on purpose. They short-pay the invoice and tell you why on the remittance. It sits on your aging as an open balance until somebody either clears it or disputes it.
Is an AR deduction the same as a chargeback?
Close enough in practice. Chargeback is the word retailers and distributors use for what they're doing. Deduction is the word your books use for what happened to the invoice. Nobody in CPG finance says chargeback out loud very often.
Why can't collections handle deductions?
Because the money isn't late, it's disputed. A collections call asks when the customer will pay. A deduction needs somebody to decide whether the customer was right to take it, which requires the backup file, the deal sheet and the shipping paperwork. Different question, different skill.
What is the deduction process in accounts receivable?
Four steps. Match the deduction to the invoice it came off. Find the backup that explains it. Compare that backup to a document of your own. Then either clear it to the right account or file a dispute inside the window.
How much of AR deductions are recoverable?
Most published estimates put invalid deductions somewhere between 5% and 10% of the total. The honest answer is that it varies enormously by which families you take and how fast you work them, and anyone quoting you a single number across all brands is guessing.
What does it mean when a deduction ages out?
Every customer has a window after which they stop accepting disputes. Once it closes the balance is yours to write off, whether or not the deduction was valid. Aging out is the single most common way recoverable money is lost, and it's silent.
Related reading
For the two distributors most CPG brands deal with, read the UNFI and KeHE survival guide. For what the codes on a UNFI backup file mean, read UNFI deduction codes. For how fast recovery rates fall once a deduction ages, read why deduction recovery decays. For the posting side, read cash application for CPG deductions.