Whenever an Invoice is sent to a retailer, it's difficult to miss the negative charges at the bottom of the bill. Quantity discounts and net terms seem to stand out in red (even if they aren't) because of the money that appears to have been lost due to no fault of your own. 

These credits are called allowances. They are the terms that you and your retailer agree upon whenever you become their supplier. An allowance is an agreement that if a retailer does specific actions that are beneficial to you (buy in bulk, pay you by a particular time), then you will do something that is beneficial to them - by discounting their order. 

But what about the other charges that you receive? The ones that the retailer sends back with the check? Those are called deductions. 

​What do deductions look like?
You may have recognized them whenever you reconciled your purchase order, invoice, and payment against each other. These deductions are the line items that seemingly outnumber the few positive amounts.

The retailer sends you a deduction whenever they record issues with your order when it is received. Based on a list of adjustments that are typically held in your retailer's EDI 820 specs (check out  Walmart's, for example), these deductions can seemingly penalize you for anything.  

​What do the adjustment codes mean?
These adjustment codes can be a signal that something is wrong in your supply chain. For example, if you are receiving an abnormally high volume of the adjustment code 27 for Walmart, it could mean that you need to re-examine your carton's quality and see if it's time for an upgrade.

Your retailer manages deductions after receiving the Invoice. Allowances are terms that you send along with your Invoice because of what you and your retailer agreed upon when you became their supplier.

In conclusion, deductions may signal that something’s gone awry and needs improvement, while allowances are the sign of your business at work.