Rebates were “invented” as a way of driving sales growth without simply reducing the contract price. By agreeing retrospective financial incentives based on actual sales, both the supplier and the distributor are working together to drive market share and growth.
Rebate Management refers to the management of discount claims that are based on volumes of purchases over time. To some companies, that rebate is treated as a bonus. But to others, rebates form a significant proportion of their revenue and for these companies accurate rebate management is absolutely essential.
What is a rebate program?
Rebate programs are a way of giving individual customers the ‘right price’ without driving the price downwards and they also create loyalty. Rebate programs are essential to operations in various industries including building supplies, electronics, retail, and wholesale distribution and can be offered to certain locations, on certain products or product groups and on certain types of transaction. This means that they can get rather complex and many are finding that “standard” business systems or manual processes such as spreadsheets don’t facilitate this complexity.
Types of rebate programs
There are many types of rebate programs and our rebate management software supports over 300 of them. Here are just a few rebate examples:
- Supplier rebates - They represent a promise by the supplier to reward the distributor for achieving certain goals: selling more product, selling higher-value products, developing loyal customers, generating demand, and so on.
- Customer rebates - Customer rebates are how large companies (like manufacturers) incentivise their customers, or vendors (typically those who sell to multiple groups of people, such as chain stores, buying consortia, distributors etc.) to sell specific products within a specific time.
- Volume discounts - A volume discount is a change to the cost of a product based on the quantity of that product traded with your trading partner.
- Retrospective discounts - If you have a deal with incremental percentage rates for specific turnover bands, then you will be able to choose to make it retrospective or non-retrospective. If retrospective, the percentage rate for the band of turnover reached will be applied to all historic turnover that applies to the deal
How to manage your rebate programs better
The management and processing of rebate programs is challenging, with significant financial risks if something goes wrong due to loss of data or human error.
Many rebate arrangements lack support in financial accounting systems, such as targeted incentives and multistrand rebates. Keeping a track of rebate programs when purchasing is decentralised or where the trading agreement is made by a buying group creates further challenges.
Many companies work their rebate programs out in spreadsheets, relying on individuals to collate and input data manually. This rebate management process works in theory but it's easy to see how it could be subject to errors or omissions. Alternatively, some companies rely on their suppliers to perform all the relevant rebate calculations for them, without ensuring it all checks out.
Neither rebate management method is optimal, as they both create a wealth of issues if things go wrong — slow cashflow, loss of income, disagreements with suppliers, incorrect margin calculations — the list goes on!
In order to manage rebate programs successfully, and reap the financial rewards they can bring to your organisation, there are certain practices you must take towards implementing an efficient and effective rebate management process.
5 steps for an effective rebate program
- Ensure mutual understanding with suppliers — prior negotiation of viable rebate terms with suppliers reduces any risk of disagreement between purchasers and suppliers with regards to the contract. Both parties should have access to the relevant data and calculations and be clear on rebate terms in advance.
- Maintain compliance — a transparent audit trail will make sure that all relevant information about your rebate programs are recorded, allowing easier monitoring and auditing to take place. A rebate management system should provide a compliant process to eliminate the time and cost involved in providing evidence for rebate claims.
- Reduce uncertainty — ambiguously worded agreements, unclear procedures and over-reliance on individuals all provide room for error which could create cost and risk in your business. Systemise the content of rebate agreements to remove any ambiguity.
- Keep track of earnings and incentives — the ability to accurately calculate and track rebate program earnings and forecasts is fundamental to reliable rebate accruals and maximising the incentives built into rebate agreements.
- Streamline processes — automating the collection of information about rebate deals and purchases and the reporting of rebate claims minimises the need for manual intervention, reduces error and improves cash flow.
A dedicated rebate management system like Enable will make it easy to track complex supplier agreement and ensure that all of the rebates negotiated in the terms of your agreement are captured and claimed.
For more information about managing rebates programs, download our guide “How to manage complex rebate contracts effectively.”