Leiner Health Products: Recovers $12 million in Lost Revenue by Decreasing Deductions by 75% Using EMAGIA

Leiner Health Products, the largest manufacturer of private-label vitamins and supplements in the US, needed a system to properly manage and restructure its cash flow processes, provide real-time visibility into its A/R portfolio, and most importantly, handle its skyrocketing deductions. Using the Emagia solution Leiner has completely revamped its customer-to-cash cycle and slashed deductions by 75% in six weeks post-implementation. Today, Emagia Deductions Management provides automated workflow and routing; chargebacks are processed significantly faster resulting in reduction of backlog and outstanding deductions.

Maximizing revenue was first priority to the executives at Leiner Health Products, a leading $800 million supplier of vitamins to retailers like Wal-Mart and Long’s Drugs. Revenue leakages from deductions taken by retailers were, in some months, approaching 40% of sales. Leiner knew it had to rectify this crippling drain to the bottom line and quickly cap its cash flow losses to redirect itself towards profitability.

The Challenge: Revenue leakages from deductions impacted company profitability and cash flow.

Leiner’s high volume sales into big box retailers required finance, customer service and cash flowprocess to operate in concert. To be profitable, Leiner had to bill and collect timely payments from these favored retailers while navigating through a maze of discounts and special arrangements negotiated by company salespeople.

As Leiner grew and business environments changed, Leiner’s reliance upon outdated and manual processes and systems to address urgent A/R issues could no longer suffice and was negatively impacting the bottom line. Leiner’s AS/400 system and manual processes around receivables simply could not keep track of or provide proper visibility into its collections portfolio driving a high level of write-offs of disputed items.

Leiner executives realized that speedy deduction resolution required a collaborative approach between A/R, sales, trade planning and logistics departments. Customers routinely questioned the accuracy of bills requesting a detailed breakdown of charges. Without the proper tools to trace billing, Leiner found itself laden with chargebacks and deductions withheld by retailers that required investigation. Open chargebacks were shaving $17 million from annual revenue.

Types of deductions plaguing Leiner were:

• Unauthorized deductions taken by customers related to trade promotions
• Preventable deductions – many related to non-compliance, erroneous shipping, freight handling, etc.

Leiner was unable to resolve claims quickly and many invoices remained unpaid in dispute for up to 90 days often resulting in write-offs. “Cash flow is all about improving accounts receivables and cleaning your balance sheet,” said David Coles, a managing director at Alvarez & Marsal, Inc, a turnaround firm hired by Leiner management. “Accurate and fast collections is an absolute priority.”

The Solution: A Collaborative solution for deductions management with real-time visibility into A/R portfolio

After looking at other software solutions and with Alvarez & Marsal’s recommendation, Leiner executives unanimously agreed that the Emagia solution offered the most advanced and effective tools to revamp its cash flow management processes.

Using a easy-to-use workflow based deductions management system from Emagia, Leiner was able to:

• Automatically identified the specific issue based on dispute reason code and routed it to the appropriate department (sales, customer service, trade planning, etc) for review
• Tracked each step of the resolution process and sent alerts to higher level managers when deductions were stuck in the resolution process or were not being addressed in a timely manner
• Documents supporting customer claims are scanned into the system, coded to a particular dispute and automatically forwarded to the appropriate team
• Use Emagia deductions analytics and reporting to identify bottlenecks in the dispute resolution process, key reasons for deductions, and a whole host of other deductions aging reports

This automation in conjunction with A/R process changes was crucial to improving revenues and reducing operational expenses.

Bottom Line Impact:

With a focused restructuring plan and best-of-breed Emagia technology, the results at Leiner came almost immediately. The end result of the process was the following:

• 75% decrease in deductions backlogs resulting in revenue boost of $12 million
• Deductions value dropped from $8 - $10 million per month to negligible amounts under $100,000
• Average time of dispute resolution dropping from 50 days to 5 days with same day resolution not uncommon
• More control over types of deductions with more automated and standardized methods to resolve them and fewer unauthorized short payments
• Real-time, comprehensive visibility into entire dynamic A/R portfolio to better strategize company direction and goals

Chief Executive Officer Robert Kaminski has the Emagia dashboard display on his desk providing him with a real-time view into the company’s financial performance. Kaminski says, “It tells you what you can’t do without to run a company.”