Rebate revenue management is critical to companies that rely on rebates to improve margins. For some it’s a bonus, for other companies it’s a significant proportion of their profit.
But reaping the benefits from complex trade agreements that involve retrospective payments (such as rebates, retrospective discounts, purchase income and other forms of back margin) and maximising their potential during initial negotiations and the lifetime of the contract is far from simple. The large number and complexity of agreement types, the variety of scenarios from different vendors, missing data, changing agreements, and tight margins, make managing these types of trade agreements particularly challenging.
Here are 4 key challenges that are common amongst companies looking to streamline their rebate management processes to get more from their complex trade agreements:
1. Product and unit of measure complexities
Trade agreements are negotiated around multiple complex dimensions that can be unique to each supplier, product and customer and based on units of measure from square metres and tonnes, to bags and barrels. The sheer number of permutations means that spreadsheets and basic financial accounting systems largely fail to manage this situation.
2. Access to accurate data
Purchasing teams can’t negotiate without accurate, timely and relevant information. As simple as that sounds, it’s a surprisingly common oversight. Purchasing are expected to have all the data they need to negotiate with, but this becomes a problem when the information is logged on multiple, disparate spreadsheets and printed documents. This is a major problem, especially for companies with multiple brands and site locations.
3. Avoid dispute and enhance supplier relationships
Disputes with suppliers over rebate payments due not only damage supplier relationships but also hit the bottom line through, at best, the delay of payment or at worst, not receiving the value anticipated. If disputes are to be avoided, then deals need to be clear and unambiguous. Deal calculations must be readily available to both parties, and most importantly, much match up.
4. Failure to collect the full rebate earnings
Trade agreements can be in place for considerable periods of time. Data needs to be clear, concise, 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.
To get more out of your retrospective trade agreements it’s necessary to consider how manual and inefficient processes can be replaced with a robust rebate management system, which handles the complexities and intricacies of each deal entirely, providing the opportunity to fully realise rebate income.
Online rebate management systems can be implemented to provide a single access point across departments. Commercial teams can log on to the system to model their deals and finance teams can see the impact on the accounts. This centralised system can also provide insight into group purchasing and help to rationalise buying.
For additional insight into improving your rebate management systems and the options available to your business, download our eBook: How to manage complex rebate contracts effectively.