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X9: A Better Approach to Retail Debit Balances

  • Published: 5/10/2016

Retailers and suppliers alike are frustrated by retail debit balances and are seeking to handle them in a consistent way that is fair to all parties. 

Retail industry practitioners know that an accounts payable account typically has a credit balance, which indicates the amount that a retailer owes a supplier for goods received. A debit balance means the account is in deficit status, that is, the supplier owes the retailer. 

A retail debit balance claim can come about in many ways. For example, common causes include allowances, deductions and returns initiated by the retailer. Resolving debit balance claims can be time-consuming and tedious. Resolution is often delayed by poor communications between trading partners, inaccurate invoices, and/or inaccurate or incomplete documentation.

In 2015, the Accredited Standards Committee X9 convened a diverse team of 28 retail industry practitioners (representing major retailers, suppliers, consultants and others). These retail industry stakeholders worked together to propose ways to standardize retail debit balance handling and advocate a more consistent approach that benefits all parties.

The result was the X9 TR 45-2016 Retail Debit Balances Best Practices and Procedures Technical Report, which aims to minimize headaches and pain points caused by ineffective handling of retail debit balances. The core of the report is a table that defines agreed upon best practices from the perspectives of both the retailer and the supplier. A summary table describes the characteristics of the "best" trading partner from each party's point of view.

Providing proper documentation to support debit balance claims is essential. To this end, one comprehensive table cross-references a) key data elements (e.g., invoice number, PO number, etc.) that should be included in documentation to support debit balance claims against b) each major underlying reason that results in a debit balance (e.g., physical defective return, trade promotion, markdown, etc.). One section of the technical report outlines desirable characteristics of retailer web portals. Finally, the document shares key findings from a national survey of retail professionals, including many AFP members, on the subject of retail debit balances.

As the retail industry work group states in the introduction of the report: 

"Best practices are methods proven to be successful in accomplishing tasks or goals which should be used or adapted by others in like situations. Not every trading partner will opt to implement all of the debit balance best practices outlined in this report. However, these practices have been identified by a diverse group of retail industry practitioners. As such, the work group encourages retail practitioners to consider these best practices as they evaluate their own processes and adopt the ones that are beneficial to their organizations."

Mary Hughes is a senior payments information consultant at the Federal Reserve Bank of Minneapolis.

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