What Are Deductions?
A deduction is any amount a retailer withholds from your payment. Instead of paying your full invoice total, the retailer subtracts certain charges and sends you the remaining balance. These deductions show up on the 820 Payment Advice document with reason codes that explain why the money was withheld.
Deductions are a normal part of doing business with major retailers, but they can add up quickly if you are not paying attention. Understanding what each deduction means is the first step toward managing them effectively.
Common Deduction Types
Compliance Fines
These are penalties for not meeting the retailer's shipping, labeling, or EDI requirements. Examples include shipping after the Must Arrive By Date, sending the ASN late or not at all, or using incorrect carton labels. Compliance fines typically range from $50 to $500 or more per violation.
Co-op Advertising
If you have a co-op advertising agreement with a retailer, they will deduct your share of advertising costs from your payments. These charges should match the co-op terms you agreed to when setting up your trading partnership.
Volume Rebates
Some retailers negotiate volume-based rebates where they receive a percentage discount once purchase volumes reach a certain threshold. These rebates are typically deducted from payments at the end of a quarter or year.
Damaged Goods
When a retailer's warehouse receives product that is damaged, they will deduct the cost of the damaged items from your payment. They may also charge handling fees for dealing with the damaged goods.
Pricing Discrepancies
If the price on your invoice does not match the price the retailer has on file from the purchase order, they will pay the lower amount and deduct the difference. This is one of the most common and most preventable deduction types.
How to Read a Deduction on the 820
When you view a payment in RetailReady, each deduction is displayed with the following information:
- Adjustment reason code: A standardized code that categorizes the type of deduction.
- Description: A plain-language explanation of the deduction.
- Amount: The dollar amount that was withheld.
- Reference: The invoice number or PO number the deduction applies to.
RetailReady translates the raw EDI reason codes into readable descriptions so you do not need to look them up yourself.
When to Dispute vs. Accept
Not every deduction is worth disputing. Here is a general guideline:
- Accept deductions that are legitimate and match your agreements, such as early payment discounts you agreed to, co-op charges in your contract, or compliance fines where you genuinely did not meet requirements.
- Dispute deductions that are incorrect, such as compliance fines where you have proof of on-time delivery, pricing discrepancies caused by a retailer error, duplicate deductions for the same issue, or damaged goods claims where you have evidence the product shipped in good condition.
Deductions and Chargebacks
Deductions and chargebacks are closely related. A chargeback is a specific type of deduction, usually a compliance fine issued through an 812 Debit/Credit Adjustment document. When a chargeback appears, it will eventually show up as a deduction on a future 820 payment. You can learn more in the Chargebacks section of this documentation.
Tip: Track your deductions over time. If you see the same type of deduction appearing repeatedly, it is a signal that you need to fix a process issue. Preventing deductions is always cheaper than disputing them after the fact.