A ship and debit agreement enables suppliers to sell their goods at a uniform price, while distributors can react to local market conditions and lower the price they use to sell to customers without losing all of their margin.
Ship and debit is widely used in the technology and electrical supplies sector. If an OEM sells laptops at $1000 and has agreed a $100 rebate for every unit sold, the distributor will pay $1000 per laptop to bring them into stock, and for every unit shipped, they will debit the OEM $100. In other words, they will claim $100 back from their supplier.
A slightly more complex ship and debit agreement might be made around maintaining margin. Suppose an item was bought for $1000 with an agreed 25% margin. However, for some reason (competitive pressures, a customer wanting a lower price for a higher volume) the distributor determines that the only way to win the deal is to reduce the item price to $900. An agreement is made between the supplier and the distributor for the new price and the claim-back is calculated as:
(Agreed Margin % x Sell Price) – Sell Price + Cost Price
(25% x $900) - $900 + $1000 = $325
If you are a distributor carrying thousands of lines of stock with different types of agreement in place, managing the process can be fraught with problems:
- How do you communicate complex pricing agreements to your sales people so that they sell units at the right price, and retain competitiveness in the market?
- Would you like to control margin centrally so that sales people cannot inadvertently give away all your hard-won profits?
- How do you ensure that every unit sold (that is on a ship and debit agreement with your supplier) triggers an instant claim on the supplier?
- Do you have an audit trail to match up shipments to your debit claims?
- Can you prove that you had an agreement to make this debit claim in the first place?
- How do you track everything in real time?
To add to the complexity, “ship and debit” isn’t the only type of pricing agreement that distributors have to deal with. We have seen many different types of rebate agreement from simple ship and debit to more complex tiered, retrospective discounts.
No matter how the agreement is structured, being able to claim a debit (or rebate) the instant an item has been shipped to a customer can have a big impact on cash flow — the longer the time between selling an item and claiming back the debit from the supplier, the worse the cash flow position.
In fact, improving cash flow is one of the main reasons businesses all over the world are using the DealTrack Rebate Management System.
But that’s just the start of the story. Businesses that use DealTrack quickly realise that the main benefit of having a comprehensive, but flexible rebate management system is that this provides a way to drive profitable growth.
This is achieved through a combination of cleverly devised features of the software, such as:
- Accurate modelling of your suppliers, branches, people, items and deals
- Simplified processes from creating supplier agreements through to tracking and claiming rebates
- Online collaboration between suppliers and your commercial team via a supplier portal
- Complete online tracking and audit trail for all types of rebate
- Accurate and automated management of rebate accruals, supplier debits, rebate claims and invoices
- Forecasting, reporting and tools for negotiating with suppliers
- Easy integration with any ERP or Financial Accounting software
All of this leads to improved profitability through better supplier collaboration.
To find out more about how to manage complex rebate contracts effectively, download our guide.