If you’re responsible for procurement in a buying group, wholesale distributor, multi-site or large business (such as building materials, HVAC, plumbing and electrical supplies businesses or buying groups of all types) then it’s likely you have a need for a contract management system that can accurately deal with supplier rebates.
Rebates were originally designed to aid both the manufacturer and the distributor to grow product sales without resorting to a price war. By maintaining a set price that is reduced by rebate income depending on actual sales, manufacturers can control margins and reward those who promote their products the most.
At any point in time, the net margin on a product is dependent on the total volume of sales to date and the detail behind the rebate agreement that is in place. Actually KNOWING the volume of sales and the rebate level that has been reached — particularly in a multi-site operation — can be difficult. As a result estimates on available margin are commonplace and pricing errors are therefore inevitable.
Whilst most contract management systems and ERP systems can handle some aspects of rebate accounting, even big businesses come unstuck when the process of accounting for rebates is difficult — as seen in Tesco’s accounting scandal. Cases like this, plus IFRS 15, is causing auditors to look at rebate management processes very carefully.
This need for an auditable process and the desire to use very creative rebates as a vehicle for growth has resulted in a new paradigm of business system — the rebate management system.
A rebate management system collects information from core business system(s), enables deals to be modelled and monitored, and feeds back timely accurate information for sales, purchasing and finance.
Simplifying the process of rebate accounting means having the ability to accurately reflect all the nuances of different types of supplier agreements (retrospective discounts, rebates for reaching volume targets, value-based rebates, product-specific rebates, distribution rebates, and so on) and being able to plot purchases against those contracts, in order to claim rebates and discounts at the appropriate time.
If your existing contract management software doesn’t handle everything you need in this area, then perhaps you need a rebate management system that integrates with your existing systems?
Discover more by viewing our recorded webinar 'how to manage complex deals and drive margin'. Hear from global procurement experts about their experience of managing complex rebate deals to improve margin.