6 ways to improve your rebate accounting processes

6 ways to improve your rebate accounting processes

Posted by Andrew Butt on March 22, 2017 08:30:00

The complexities involved in managing complex trade agreements and rebate accounting and retrospective discount payments are often difficult to model in manual systems such as spreadsheets and basic accounting software. Organisations opting to calculate, forecast and accrue rebate income in this way leave themselves at risk of inaccuracies, missed opportunities and supplier disputes.

Below are 6 ways to improve your rebate accounting processes in order to:

  • remove the risks associated with manual rebate processes
  • deliver a streamlined process for handling complex trade agreements
  • provide a foundation for growth in business profitability and revenue

1. Systematise complex trading agreements

Any complex trading agreement for rebates that sits in a filing cabinet — either real or virtual — waiting to be examined at the end of the agreement period is a clear route to failure:

  • failure to meet the goals set in the trading agreement
  • failure to claim rebates owning
  • missed opportunities to sell more and achieve a higher level of rebate
  • failure to understand the true current net net price when quoting for new business

The ability to model every aspect of a rebate deal and make it available on line is a clear starting point. The rebate management software should be able to model all deal dimensions from the type of rebate deal being made, to the member or branch rules that apply to each of these, the turnover bands they fit into and all the intricacies in between. The complexities remain the same, but the input and management of these should be made available to everyone concerned — online, any time. 

2.  Map transactions from your core purchasing systems to your supplier agreements

Now that you have your trade agreements systematised, the next stage is to integrate all your systems that are involved in buying products under those agreements. Rather than manually inputting purchases made, goods received, sales transactions etc against trading agreements, these should be automatically reconciled to the online trading agreement.

In this way, users (finance, rebate accountants, buyers and sales people) can have access to real-time accurate information about purchases against contracts which in turn is needed to calculate rebate earnings, discount levels achieved, true margins and net net pricing.

3.  Automate rebate and pricing calculations

The next step is to automate those calculations that are essential to your profitability and ultimately, business growth.

Calculations needed might be based on purchase data, goods received, sales transactions and/or the data reported by suppliers based on the agreed parameters of each deal ensuring accurate, visible and timely accruals.

Automating the calculation of rebates based on transactions and agreed contracts provides accurate up-to-date data.  This can be used:

  • by purchasing teams in order to consistently negotiate from a position of strength
  • by sales people to understand the accurate margin information when negotiating with customers
  • by finance to collect rebate income and report profitability

4.  Introduce automated alerts

It's all very well being able to report after the fact, but you can really drive business profitability by introducing automation in the form of alerts for potential missed margins, contract renewals, impending incentive targets and so on. 

True cost and margin alerts can be used to warn staff when deals and opportunities could be missed, or need to be chased. Buy price, sell price and true net cost price can be made available and used to prompt these margin alerts.  This helps to avoid margin—damaging purchase decisions that can result from the continual variation in margin that happens with very complex rebate deals.

Proactive notifications can be raised when your rebate contracts need to be renewed, when contract sign-off is required, when incentive targets are approaching/likely to be missed, or a change to a contract is pending review.

Make missed rebate accounting opportunities nearly impossible!

5.   Provide buyers with the ability to model future deals

To really excel at rebate accounting negotiations, buyers need to have the ability to model deals based on past purchases and future projections. Whilst this is possible by exporting data and using a data warehouse or even a spreadsheet, those methods are reliant on building your own models for capturing data and creating forecasts.

A sophisticated rebate management system, on the other hand, already contains all the data that buyers need and should be designed to incorporate the modelling functionality that they desire.

Purchasing departments should be able to replicate former deals and alter their data dimensions to forecast parameters for new contract negotiations, as well as those coming up for renewal.

6. Give suppliers access to your online contracts

With supplier contracts being negotiated and managed by multiple people across several teams within your organisation and within your suppliers’ businesses, a collaborative portal is a highly efficient way to go about making sure everyone has visibility and every agreement has the appropriate approvals in place.  

This supplier portal ensures that both you and your supplier share an identical version of the trade agreement, forging a mutually agreed understanding whilst allowing internal management sign off, as well as external sign off by supplier.

A supplier portal puts an end to disputes over rebate accounting claims as all information is clearly visible to all parties.

Find out more

If there’s room for improvement in your organisation’s current rebate accounting processes, download our eBook How to manage complex rebate contracts effectively for additional information on the solutions available to you.

New Call-to-action

Topics: Rebate Management, Rebate Accounting