Trading agreements involving rebates are prevalent in many industries such as building materials, lumber, HVAC, electrical distributors, buying groups of all types and other wholesale distribution businesses. Rebates are used by suppliers to these industries to influence purchase decisions and drive profitable growth for both the supplier and the wholesaler.
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 agreements are becoming increasingly more creative and many are finding that “standard” business systems don’t facilitate this creativity.
This need for an auditable process and the desire to use very creative deal mechanisms as a vehicle for growth has resulted in a new paradigm of business system — the rebate management system.
Our buyers’ guide is aimed at those wanting to choose a system to address the issues posed by managing rebate agreements. But first, let's take a quick look at the issues and the benefits of a rebate management system.
Rebate accounting problems caused by Excel spreadsheets
We have seen many cases where what has been agreed cannot be accurately modelled in the purchasing/financial systems that are used to record transactions under that agreement. As a result, many businesses resort to using spreadsheets to monitor purchasing activity, make rebate claims and apply for retrospective discounts.
Any multi-site business — a buying group or a national wholesaler, for example — may be operating multiple financial or ERP systems. Consolidating information can be time-consuming and tricky. Again, we have seen many cases where spreadsheets are the considered solution.
But relying on spreadsheets is notoriously prone to error, and manually processing data in this way is incredibly time consuming.
Spreadsheets issues that can occur when managing rebates include:
- multiple versions of the truth — problems with spreadsheet version control
- human errors and omissions in gathering data
- time delays in reporting on consolidated information
- difficulties in dealing with multiple units of measure
- inability to provide evidence to justify rebate claims
- missed claims or a "feeling" that not everything has been captured
- reliance on suppliers to inform you what claim you should be making
Rebate accounting issues faced by procurement
Typically, procurement will negotiate discount schemes and rebates, and those agreements are devolved to others to manage on a day to day basis.
With information contained in disparate systems and spreadsheets, procurement cannot have a good hold on all the information needed to negotiate the best possible deal.
This can stifle creativity and impede potential business growth.
If a system does handle rebates, but not every type of rebate can be modelled, some businesses try to restrict the types of rebate that can be negotiated to the ones their core systems can handle. This is clearly not helpful to driving the best margins and collaborating with suppliers to get the best deal.
We have modelled over 90 different types of rebates and retrospective discounts in our rebate management software — many more (we believe) than any other type of contract management software on the market. We have yet to find a deal that cannot be modelled in our software — no matter how creative the terms!
The need for a rebate management system
Many core business systems have some functionality to help monitor these trading agreements that involve vendor rebates, most have neither the flexibility nor the extensive range of functionality that is needed to support the increasingly complex world of rebate management. For many, that lack of functionality has resulted in missed rebates and poor accrual accounting.
But worse than that, if your business systems don’t support rebate management fully, then the whole purpose behind creating deals involving rebates – a means to influence business growth – is missed. Added to that, financial policies are moving auditors to verify that companies who make trading agreements involving rebates have a robust process in place for determining appropriate accounting measures.
Benefits of a rebate management system
Our rebate management systems offer core benefits to a company in terms of revenue optimization, cost reduction, risk management and cash release.
- Optimize revenue
Guarantee that the maximum possible income is generated from each supplier deal. All too often deals which were skilfully negotiated are filed away and the true value is never realized.
- Reduce cost
Save considerable time on entering deals/contracts, calculating rebate due, and preparation of reports. These typically manual steps can be partially or fully automated and integrated with your ERP system to eliminate re-keying of data.
- Manage risk better
Provide a central system and set of structured processes around Rebates rather than risking each buyer having their own ways of working.
- Release cash
Gain new levels of reporting insight through comprehensive forecasting tools to allow future deals to be structured for optimum cashflow
Get better results with Enable rebate management
After realising that managing rebates was becoming a serious problem for our clients in the building materials sector and large buying groups, we developed a rebate management system.
Enable solves rebate accounting issues, removes reliance on spreadsheets and provides accurate up-to-date information for negotiating deals. But, the solution goes much further.
Enable provides a rebate management platform for mutually profitable growth with suppliers. With all information in one place, Enable customers enjoy the following results:
- no more missed claims
- complete information for procurement negotiations
- better collaboration with suppliers leading to
- mutually profitable growth
If you’re currently at the stage of looking for a rebate management system, you'll want to ensure you can do more than simply model all of your trading agreements. You'll want workflow to ensure a smooth flow of information around trading agreements. And you'll be looking for a rebate system that can operate seamlessly across all elements of your business.
Buyers’ guide to rebate management
Download our buyers’ guide to choosing rebate management software to discover how to go about selecting a rebate management system that meets your companies needs.