Deduction is one of the important steps in order to cash cycle which is the complete process, every business enterprise follows.
This step comes into picture when an invoice has been raised and sent to customer which the customer does not pay in full. The personnel involved in this process then raises a new invoice with the amount so settled between customer and company.
For a business enterprise, deduction reduces total amount of sales and hence lead to lower profit. It also increases the total wastage of time for personnel involved in this process.
Reasons for deduction
The main reason for adjusting the amount of an invoice is settlement of trade promotion. Trade promotion is a technique used by companies to attract more retailers and partners.
Deduction is made in payment by customers as a result of poor quality of product, delay in shipment, incorrect invoice raised to customer, return of product by customer or any other reasons.