283. Accounts Receivables for CPG Brands in Retail

0:00Welcome to Startup to Scale, a podcast by FoodBevvy. I'm your host Jordan Buckner. Join me as I talk to aspiring entrepreneurs, seasoned industry experts, and everyone in between as we unlock the keys to growing from startup to scale.

0:18When I launched into my first retailers, I never expected how little I would actually get paid.

0:24Jenna Oviedo:One company that owed like four or five million dollars. You're like, well, you haven't seen any checks yet. They've never sent any invoices. Wow. You know, this industry really is taped together with Excel files and emails. It's really what your lenders look at first. And it's overdue, right? Like you can't run a business that way. They actually had a million dollars passed you. So it was a material amount. And their initial response was, maybe we have to write it all off, right? That really hits hard, right? When you have to give up more equity for some of these things instead of managing what you're rightfully do.

1:02There's a lot that goes into this just to get paid nothing.

1:06Jenna Oviedo:These small errors in this process do compound quietly and can get really big over time. When I launched into my first retailers, I never expected how little I would actually get paid. And as you grow into retail, you'll quickly encounter short payments, retailer deductions, chargebacks, promotional allowances, distributor remittances, it goes on and on, right? And without the right accounting structure, accounts receivable becomes unreliable, cash flow becomes really hard to predict, and founders start to lose visibility into the health of your business. So today I've invited on Jenna, who's the founder of Jave Insights.

1:44Jaf works with CBG Brands to simplify this whole deduction management process, improve accounts receivable processes, and really help you build a financial system that stays clean as you scale. So I wanted to talk with her about that practical side of retail accounting, how to structure your books, and we're going to be going through that today. Jen, welcome.

2:04Jenna Oviedo:Thank you so much for having me. I'm so happy to be here. Of course. I know this is like a big topic. I have received like, you know, the unifying KHE invoice checks and don't know half of what's going on on them. Only to realize months later, like how much money we're actually losing. So I think this is just really great in terms of building that foundational structure of, you know, helping track, helping brands track what's actually going on in their business. Absolutely. And you hit the nail on the head of how accounts receivable is such a vital tool. And if it gets away from you, it's not really useful at all.

2:35Jenna Oviedo:So I'm going to go into all of that today. Perfect. Well, I love it. Why don't you jump right into things? Yeah, well, as Jordan mentioned, I'm Jenna from Jabe Insights, and we really focus on deduction management day in, day out. But we've learned so much since I've been in this industry for about 14 years. And two things have not changed as the industry has evolved. One is it's still very expensive. And two, founders are taxed with having so much to figure out from day one. So accounts receivable, kind of the less sexy side of the business may get away from you, but it's such an important tool.

3:16Jenna Oviedo:So I hope you leave today with some real tactical things that you can implement right away that's not overwhelming and can help your business. So let's jump in. First of all, you kind of already touched on this, which I love. Like, why does it matter? Well, first of all, AR is your real-time cash flow pulse, right? This AR really gives you the pulse on everything that's happening in your business. It can tell you what dollars are coming in, what dollars should be coming in but haven't. It's really what your lenders look at first, too. Lenders, investors, strategic acquirers are going to look at AR.

4:01Jenna Oviedo:And really, it tells them two things. One, are we going to get repaid if we lend you money? And how much should we lend you? And then if you're disciplined in accounts receivables, it gives them a really good indicator that you're probably disciplined in the rest of your business and they can really rely what's in your books. Third, it's a warning system, right? Things happen all the time. You could have the best team who knows exactly what they're doing, but some EDI glitch or a pricing change doesn't quite flow through. This feedback loop between whoever's doing your cash application, which we'll get into, and whoever's doing your invoicing can work really closely together to catch anything that is popping up through keeping your AR clean.

4:47I love that. Jenna, I'm actually kind of curious and maybe we'll get into it a little later, but have there been any big gaps or problems you've identified when you start working with someone where they come on board and they're just like, oh, wow, you have this much money that's uncollected that's just sitting out there or anything like that?

5:03Jenna Oviedo:I'm going to show you a couple of examples. But yes, we've seen the gamut. One company that kind of blew up overnight that we started working with was like, I think we're owed like four or five million dollars. We're like, well, you haven't seen any checks yet. They'd never sent any invoices. Wow. So it's just something that not everyone knows how to navigate, right? So you're not alone. Everyone out there who's like, I don't know what's going on. You're not alone. We've really seen it all. The first, there's six topics that I hope we get to today. The first is your chart of accounts. So I'm going to talk about that.

5:41Jenna Oviedo:I'm actually going to skip out of here. But actually, before I do that, I have this note that I need to make sure I talk about. We are not certified accountants, right? And everything that I have in here is a strong suggestion. So if you like 90 % of it, take 90 % of it. If you have a reason why you need to do things differently, that's fine. Just be consistent and take from this what you will, especially this chart of accounts. This is probably one to go back to your question. This is one that we see a lot. Everyone puts all deductions in a discounts line item. That, you know, makes our heart beat fast for two reasons.

6:25Jenna Oviedo:One, you can't really do anything with that data. And then two, it inflates your gross margin, which is what you're probably valued on. If you're not, that's incredible. But not everything needs to go into trade spend. So let me just go through this chart of accounts really quick. This is a free download. There'll be, I don't know how we'll link this after. Yeah, we'll include a link to it in the show notes. Okay, perfect. So it's set to anyone who has the link has viewer access, you can download this. I've got a sample balance sheet here using thousands for assets, two thousands for liabilities, three thousands for equity.

7:07Jenna Oviedo:This is really going to depend on what you have going on, right? But your P &L can mirror this pretty closely. We've got four thousands for income items. I highly recommend numbering your accounts with anything that is, you know, income related at the top and anything that's a contra revenue account or what we call trade spend or discounts and allowances right below that. We break it out or we recommend you breaking it out by anything that's distributor related and retailer related and only put the things in here that you have to pay for in order to promote your product on shelf. Jordan, you look like you want to say something.

7:55No, I think that's great. I mean, the other thing as well is right, like this can get kind of complicated. So talk with your accountant to say like, hey, we want to make sure that we're tracking these. What's the best way to implement it for our business? but it helps to set that up because especially if you don't have like a CPG specific accountant, then that's a really great person to talk with these things through.

8:15Jenna Oviedo:Absolutely. And when would you switch your P &L, right? When would you make changes? You're going to want to footnote that to your investors if you totally revamp things. But we do feel like these buckets give you enough granularity without completely overcomplicating things. We track about 40 deduction types. Those are all listed here in column O of, you know, if you have an overpull deduction, if you have a pricing variance deduction, all the different spoilage nomenclature, right? Where do we recommend that you put these? And then several of them are here below the line. We have had some healthy debate with our clients of, no, I really want distributor ad programs to go into marketing programs.

9:06Jenna Oviedo:Again, those are your decisions to make. Just be consistent. And like Jordan just mentioned, talk with your accountant of, you know, what have we done in the past? And again, just hitting on as long as I keep going in the same bucket, you can do something with that information too. right? Unlike just a blanket discounts bucket. So that's step number one that we find that folks don't really have a chart of accounts that can tell them anything that's happening in their business. Some common AR mistakes that we see that can compile over time is just making sure everything that you're sending electronically flows into your accounting system correctly.

9:54Jenna Oviedo:We've seen everything from PO and invoice 123 come into QuickBooks as 456. Allowances don't come through. So you really want those two systems talking to each other. And it's worth the investment to get that right. And a lot of people use SPS Commerce for their EDI. And we found that their support system is pretty good. They want to help you get it right. So at least that's been our experience. So that's key number one where we would invest some time. Invoices edited after your payment is applied. Once you've set your invoice, don't touch it again. We find that a lot of brands do that. Oh, we saw an error.

10:39Jenna Oviedo:There's other ways to make those adjustments like credit memos or journal entries, but keeping those invoices locked after they're in your accounting software is key. Don't let aging balances sit. If you have any issues of where do we go for payments that are past due, UNFI has an email, unfinaturalresearch at unifi.com. um suppliersupportatkahee.com those are two that you can email and you'll get a fast response within a few days of either what to do next what form to fill out um what they're seeing on their end to get those balances rolling right kroger walmart target they all have their own system so if you have any questions on specific things feel free to reach out to me i can direct you in the right way.

11:33Jenna Oviedo:And then again, that clean AR is a credibility signal. And what do we mean by clean AR? So these are two examples. It's kind of small on the screen here. Thought about cutting it off a little bit. But on the right hand side of the screen, the one that says needs attention, you can see that there's just a lot more lingering out here. We actually just cleaned up this entire balance this morning. Had a huge happy dance for this Walmart balance. Finally got those repaid. You'll see some negative numbers, some big gaps. This is, if you let it sit too long, it can be a really hard thing to clean up because you're like, that was from 2025.

12:19Jenna Oviedo:I have no idea what happened then. So making this a part of your clothes process to follow up on anything that is aged is our recommendation. That way it's not something you're having to do every day, but it doesn't sit too long. And then this one, this one I can tell you everything that's aged. I know exactly what's happening. Kahi, we're having an EDI issue. They're short paying some items. So I've disputed these. I know they're getting repaid. I'm talking with the person who invoices and she figured out what their glitch was happening. And so we have a process to fix that going forward. This one is an invoice that you and if I and I know our SRM will approve it if so, we're going to send them a little gift basket to maybe help us get this across the finish line.

13:12Jenna Oviedo:But our driver signs the BOL in the wrong spot. And so they're not accepting it. So not willing to let this go. But if a lender came to us and asked, what's what is this? We have answers for everything that's happening. So it doesn't have to be perfect. But knowing what's going on in AR, having someone dedicated to that role is recommended. And it's so interesting because so many founders, especially, work so hard to get the sale, but then they don't work as hard to follow up and actually get the cash that is from the sale. And so it looks great at the top line, they'll keep going and then realize like, wait, we have thousands or hundreds of thousands or in some it's millions of dollars that we sold product delivered it for and it's overdue right like you can't run a business that way you can't um actually this brand right here this has been a summer lawn project they actually had a million dollars passed you so it was a material amount right so and this is a much bigger brand on the right but it was a lot of money and because they needed to go out for a line of credit that they the lender said i gotta know what's going on out here.

14:23Jenna Oviedo:And their initial response was, maybe we have to write it all off. Right. And luckily, we've gotten, you know, almost 900 ,000 of it back that that extra, like I said, we just cleaned this up today. So we got that back. But it's a common thing that happens what you just described, Jordan. And there might be the difference between needing a larger line of credit and not right. Like if you had that cash sitting in your book, you might not have needed a certain line of credit because you have the cash in the bank to pay for the things. Yeah. Or go for another raise sooner than you needed to. And I mean, that really hits hard, right?

15:04Jenna Oviedo:When you have to give up more equity for some of these things instead of managing what you're rightfully do. So moving on, just managing trade allowances and deductions on invoice. This accruals are also a really big topic. I feel like right now. everyone's asking us, I want to do accruals, I want to do accruals, which we'll come to in a minute. But putting allowances on your invoice is the best accrual. That is the first place where you can really drive the calculation. You align your expenses with the same period you're invoicing and you have a very clear picture of your AR. If we go back up to this example, let's say this brand, they're expecting$186 ,000 over the next 30 days.

15:56Jenna Oviedo:Well, if they didn't put, if this is an OI period and they didn't put a 15 % allowance, they're not gonna get 186 ,000, maybe 140, right? Maybe a little bit more than that. But you guys get the idea of 15 % off of it's not indicated on this invoice already. Your cash flow predictions are going to be off. So that's the first place that we recommend. Put your allowances on your invoices. Everything except early payment discounts. That's the main place that would get double dipped. And UNIFI doesn't want SSA allowances on there. But other than that, put every allowance, a freight allowance, any sort of everyday low price agreements that you may have with folks, Connect BI, off invoices, spoilage allowances, whatever is on the PO really should be going on your invoice.

16:56Jenna Oviedo:And that brings me to the second line here. If anything looks off, if you don't have someone reviewing your POs before you ship, that becomes a contract as soon as the product leaves the door. So if they put the wrong amounts, if they sneak that OI period a little longer, if your freight rate is incorrect, make sure you get that fixed. And I know it's not an easy task, but it's important before you ship products. The third thing that we find that if you have these allowances on your invoices, your deduction person or whoever's managing cash application can have their spidey sense up whenever a deduction comes in for one of these things.

17:39Jenna Oviedo:hey, I know we put this on the invoice. This is probably a double dip or what happened? What happened here? And that person really needs to know your accounting map cold, maybe a different word, like just really know where you're putting every expense on that P &L. Again, kind of what we talked about at the beginning of this so that when you look at your P &L, it's accurate. If you are using a third party software, we love them. I think they're getting folks way further along than they ever would be from a deduction percentage, but we are finding that they're about 50 % accurate at first pass.

18:13Jenna Oviedo:So put some eyes on any sort of deduction or pre-coding that you may be using with a third-party software just to make sure that that ad spend is going to your ad spend account or whatever the deduction may be. These are just some extra ones that we threw in here. Invoice quickly. right? We just found with another brand, very, very established. We love working with them, but they just were like, oh my gosh, our invoices are going out two weeks late. That can have a big impact on your cash flow because your customer's going to use their term dates from the day they receive the invoice or the product, whichever is later.

18:58Jenna Oviedo:Again, make sure everything is flowing on EDI based on your customer's requirements. automate when you can and you know audit when you can we've talked about a different a couple different ways you can audit so i'll move on there i also want to talk about cash application because i don't think a lot of people know how this works and this really is how you keep your ar um clean i'm going to skip the words here and go into some a real life example i picked thrive and a$0 payment because these are ones that really throw people for a loop. So I hope this one's not too complicated of an example, but Thrive has a portal that's come out in the last year or so called Coupa is how I call it.

19:47Jenna Oviedo:So if you navigate to their payments pane, they'll list all your payments below and what invoices were associated with them, the date and how much you got paid. These$0 payments we see with Amazon, Thrive, and Kroger most frequently, and they just kind of make your brain say, huh? But essentially, the process is the same whether you're receiving cash, like this$2 ,700 payment, or they're just clearing out some of their deductions against your invoice for these$0 payments. So we're going to click into one of these invoices and here's the details that it gives you. Again, a little confusing. This is a July deduction for all of the funds that you promoted with them.

20:38Jenna Oviedo:This is their new merch allowance. If you aren't working with Thrive, in the last year they just sprung new EDLPs and spoilage allowances on everyone that are pretty hefty at times. And then this is the discount amount, the early payment discount that they're taking. So we want to account for all of these things. Now, mind you, in here, you could have an ad campaign, you could have an EDLP, you could have promotional expense. So you want to look in there and split these up. and same thing for this deduction. These are, they're calling it a base allowance. We call it an EDLP and a spoilage allowance or a freight allowance and, you know, or a damage allowance that we call a spoilage allowance.

21:26Jenna Oviedo:So we know what information we need to capture. The first step is create your credit memo. I saw an AI webinar where someone used Flawed to automate all of this, which is so cool. If you know the basics, I think using tools like that to automate things is great. If you don't know what you're doing, or at least you want to know, I think it's important at least to know what is Claude doing? This is what it should be doing. So get a good sense of how it should work so that you can spot any errors. The first step is creating the credit memo. I broke out the deductions. I guess I took a screenshot of a different check because that doesn't match.

22:12But you'll still get the idea here, right?

22:17Jenna Oviedo:I've got my product of early payment discount and my rate. Like I said, those deductions had a few different types of deductions in them. So I have my promotional allowance, a wholesale damage allowance, and an EDLP. Those are all broken out to make my total amount up here equal to the deductions I need to capture. So that's step one. Essentially what a credit memo does is it's just totaling expenses on your P &L. And instead of it going to your credit card and your liabilities or accounts payable. It's affecting AR. So what this does is it reduces your net income on your P &L by the amount of your credit memo.

23:05Jenna Oviedo:And that flows into your balance sheet in the net income section in equity, right? So the liabilities and equity section is reduced by that amount. You reduce net income. Similarly, you're reducing accounts receivable. So both sides of your balance sheet are going down instead of it netting out on your balance sheet like your credit card statement might do. Hopefully, y 'all have a good understanding of balance sheets, but that could be its own five-day webinar. Your last step is applying the payment. So in here, we've got the two invoices that were paid. Let's see. We've got two invoices that were paid.

23:51Jenna Oviedo:I just showed you one. That's what happened. I just showed you one clip of one of the invoice details. You would have to do the same for the next. And I totaled them up here on this credit memo. So you got to stay really organized. As you can see, it can get away from you. And so I picked my two invoices that they paid. They did pay the open balances that I had expected. And then I tied it with my credit memo, which will be a little bit further down underneath all the invoices that you selected. And my amount received is up here a$0 payment. So what this is doing is it's reducing your accounts receivables by the increase in cash.

24:35Jenna Oviedo:So your balance sheet matches because accounts receivables go down, cash goes up, even in the instance where you're at zero dollars is essentially what's happening. This can get really tricky. So if you have questions. Yeah, I think this is the part that like, you know, founders end up navigating. They're like, wow, there's a lot that goes into this just to get paid nothing. Right. And I think that's what's really hard and confusing, but it's important to track this so that you can understand how you're actually performing, especially when you see these zero dollar payments, what your expenses were, at least knowing that what's expected was unexpected.

25:15So you can get a sense of how every channel and every retailer is performing for you.

25:21Jenna Oviedo:Absolutely. This brand, they just implemented using classes within QuickBooks, which is a really great way to to start to have P &L by customers. Now, if you do this, though, you need to have classes for every deduction or every expense you have, even if it doesn't come through as a deduction, like your freight or your brokerage firm or, right, you need to keep the classes ideally, right, so you can have a really good picture. But there's a lot of tools and tricks out there. It's just to get to the point of, okay, how are we doing? Can we keep going with this customer? So the last thing I wanted to talk about, we've talked about a lot of boring accounting stuff, but important stuff is accruals.