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How can builders merchants improve cash flow?

Posted by Andrew Butt on March 10, 2016 15:29:00

In the supply chain, builders' merchants sell building materials and goods in bulk to the construction industry and in smaller quantities to craftsman and contractors. But as distribution channels blur, builders’ merchants face increasing pressure from the bigger players such as home improvement stores who have greater brand awareness and marketing budget.

Another big issue they face is improving cash flow. Everyone in the supply chain is purchasing materials in advance of actually being paid by their customers. So, anything that improves cash flow should be welcomed by builders’ merchants. But margin is important too, and the two can be used as a trade-off — cash payments for a lower price or credit terms for a slightly higher price, in its simplest form.

Of course, anyone in the building materials industry knows that it’s more complicated than that. Building suppliers often use a system of rebates to control the price, foster loyalty and improve sales. At the same time, they impact the cash flow of the purchaser by holding back discounts until claims are processed.

Don't rely on spreadsheets

We have found at Enable that many builders’ merchants rely on spreadsheets to consolidate their rebate information. Here is why:

  • Typically, each spreadsheet is from a different source, so you are relying on multiple people in multiple locations to perform their part in the process in a timely, accurate manner.
  • Spreadsheets are by their very nature prone to error — a missed purchase here or an inaccurate record there could mean the difference between achieving a higher-level rebate…or not.
  • It’s typical in the building materials industry to work in multiple units of measure – receiving sand by the pallet, selling by the bag and having a rebate based on tonnage would not be uncommon. Reconciling the different units of measure is possible, of course, but it simply adds to the complication.
  • Whilst spreadsheets can report on history, unless consolidation takes place regularly there is no check and balance against agreed discount tiers which means discounts and rebates can easily be missed.

On top of all that is the time-consuming checking and evidence gathering that is required if there is a dispute over a rebate claim or payment, which is more likely when using mistake-prone spreadsheets. Checking the deal and calculations, potentially correcting it, verifying the new rebate amount and adjusting the claim can be time consuming when the information is held in disparate spreadsheets across multiple teams.

So, it’s clear, in a situation where complex rebate agreements are common, cash flow (and profitability) can be adversely affected if you rely on spreadsheets.

Reduce the time it takes to make a rebate claim 

Missed rebate claims directly impact the bottom line, particularly dangerous for the many builders merchants whose rebate income equates to its entire profit. Even rebates that are not missed take significant man hours and elapsed time to calculate and claim, leading to cash flow being damaged and unnecessary bank interest being incurred.

If you could get your employees to put together the information in support of a rebate claim within hours of the deadline (instead of days or weeks), then your cash flow is instantly improved. But we know this isn't the case for those who use manual rebate processes like spreadsheets and therefore 4% of rebate goes unclaimed for many builders merchants. But it doesn't have to be that way.

Forecasting cashflow

Knowing your cashflow position in the past does allow you to estimate your future cashflow position and the easiest way to stop cashflow becoming a key concern for builder’s merchants. From forecasting you should be able to gain a general idea about what income and expenses should be expected in the future.

Implement a rebate management system

There is contract management software, and many ERP systems have contract management modules. The issue that we have found when talking to companies in the building materials industry is that the “out-of-the-box” contract management system typically cannot be used to model all of the complexities of their rebate agreements. As a result, spreadsheets are still being used by builders’ merchants for some aspects and this means that cash flow, rebate claims and profitability are all adversely impacted.

Lots of our customers have found that our rebate management system provides the right solution for efficiently managing contracts and improving cash flow by:

  • Providing the ability to record for all variations of rebate process, whether brand specific, customer specific, supplier specific or a combination of all
  • Collating and consolidating live purchase and sales data to instantly calculate each rebate claim with guaranteed accuracy
  • In built alerts to reduce the incidence of missed discounts and rebates
  • Creating timely, professional invoices ready to send to suppliers to improve cash flow.

Could our rebate management software be the right solution for builders’ merchants? Discover more by taking a look at our guide: A new growth driver for building and construction distributors.

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Topics: Rebate Management, Contract Management, Industry Sector: Building Materials, Rebate Management System