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4 rebate accounting mistakes to avoid

Posted by Andrew Butt on March 14, 2017 10:26:00

Businesses managing complex trading agreements face several hurdles that are difficult to overcome entirely when using manual processes and spreadsheets. Lack of transparency, inaccuracy and limited control of rebate accounting processes is common and the ramifications of these can have a damaging effect on profit, compliance, cash flow and business growth.

For retailers, wholesalers and large buying groups, solving these issues to ensure receipt of the correct amount of rebate income and achievement of mutual trading goals is critical.  So what are the common pitfalls of rebate management and how can they be avoided?

1.   Poor visibility of rebate agreements

Can rebate earnings be tracked?  Is it clear what those earnings should be and what stage of each deal your company is at? Do your sales people truly understand the net net price of products that they are quoting for?  Do your buyers agree deals that can actually be systematised and monitored, or are some parts of your trading agreements stored away in filing cabinets? 

For efficient rebate accounting, the definition of each contract should be clear across all the relevant departments in your organisation — finance, buying and sales.  

Finance teams need to be able to view rebate earning and log cash collections, whilst commercial and purchasing departments should have a system in place to input purchase data and model proposed deals.

To provide that visibility, we recommend:

  • systematically record every aspect of every trading deal and make that information available to all parties
  • have the ability to record all purchases against the appropriate agreements so that at any time the correct rebate claims can be made, net net pricing can be assessed, and targets can be reviewed
  • electronic sign-off of rebate agreements helps to ensure that there are no misunderstandings between all the parties involved
  • real-time access to data that assesses performance against each deal is essential to ensure that your business capitalises on the agreements in place.

2.    Confused audit trail

Once a contract is in place, a major concern is often the ongoing visibility or audit trail. Manual auditing of contracts and rebate income brings with it the inevitable risks of omission, delay and error, which can cause discrepancies in between supply and purchase records and lead to problems with making rebate claims.

Internal and external audit processes have to be clear and accurate.  As well as avoiding lost rebate income, good audit processes avoid the time and therefore the cost of dealing with disputes, and provide clear evidence for reviewing retrospective trade agreements and rebate income.

A clear audit trail can also help buyers to negotiate smarter deals. By having clear evidence of actual purchase history, buyers are in a position to work with suppliers to negotiate better deals next time around.  

Good rebate accounting processes aren't just about claiming the right amount of rebate. By giving true visibility to buyers, a rebate management system helps buyers negotiate better deals.

3.   Time-consuming manual reporting

If your organisation uses Microsoft Excel® to hold all the deal data for each product, supplier, customer and the multiple combinations of these, it can take a substantial amount of time and resources to pull together reports.  Where trade agreements are complex, manual reporting is time consuming, prone to error and often struggles to deliver accurate data.

Implementing a solution that automatically generates reports helps to improve accuracy and therefore profitability and cash flow.

4.   Missed opportunities

Trade agreements can be in place for considerable periods of time. Data needs to be up to date and accurate all the way through the deal lifecycle, which can be a huge challenge. Without data accuracy and clarity, it’s highly likely that the full value of earnings will not be received, affecting cash flow and profitability.

Complex trade agreements, if not managed correctly, can represent a significant risk to the business.  If your business models its profitability and cash flow based on those trade agreements and then fails to obtain the rebates they planned for, the business is effectively failing to meet its targets.

Failure to meet deal criteria, missed contract renewals and audit trail problems all mean that the business could be missing out on purchases that would actually reduce costs!  This is particularly true where tiered rebates are in place.  A good rebate system should provide automated alerts to flag up the opportunities that are easily missed in a manual system.


So how can you negate these risks? An increasing number of retailers, wholesalers and large buying groups are replacing their manual rebate management processes with rebate management system packages that track supplier rebates, calculate retrospective discounts and automate alerts and reporting.

Some rebate management systems include a collaborative online portal enabling internal sign-off of deals and ensuring that suppliers share a common version of these trade agreements: the performance of each deal is completely transparent for both parties.

Integration to all your systems that are used to purchase goods is essential.  These automated feeds of purchase information against each deal provide an accurate audit trail.

Finally, automated reporting and alerts avoid inefficiencies and lost opportunities.

The time and cost of managing rebates will be reduced — in many cases, significantly.

For additional insight into improving your rebate accounting processes and the options available download our eBook: Key drivers for effective rebate management.

Key drivers for effective rebate management

Topics: Rebate Management, Rebate Accounting