It's all too easy for revenues to simply leak away if rebates are not managed and accounted for correctly. Several companies have made the headlines in recent years and IFRS 15 looks set to put rebate accounting firmly in the spotlight.
The necessity for businesses to have an effective management system in place to deal with complex trading agreements has become more apparent.
We’ve seen that complex trading agreements such as supplier rebates often involve incredibly complicated performance-based calculations with endless permutations and are subject to periodic review and change.
If you don’t have a reliable, accurate and effective system in place then at best you could lose out on large amounts of revenue, at worst you could be falling foul of accounting standards for revenue recognition. For companies whose revenue depends on these financial incentives, neither is a risk you want to take.
While some companies manage the rebate process effectively, in the vast majority of organisations it’s still manual, relying on individuals and manual processes such as spreadsheets. This lack of automation leads to errors and an inefficient allocation of resources. The smallest miscalculation could have dire consequences financially.
So how can you reduce revenue leakage from improper management of supplier rebates and improve your margins?
There are a number of options your organisation can adopt to help you with management of rebate agreements, including:
- Spreadsheets and manual processes – If your business only deals with a relatively small number of complex trading agreements, this may be a viable option, but as the volume and complexity increases, the possibility for error surges exponentially. The more data that these manual processes have to deal with, the more chaotic it becomes, posing significant financial risks to your business.
- Suppliers to calculate rebates – You could make things a whole lot easier for your business by handing over the entire rebate calculation process over to your suppliers, but deferring this responsibility requires a huge leap of faith that could lead to miscalculations and disagreements.
- ERP functionality – Some ERP systems have functionality to help with rebate management but lack the ability to manage the complexities involved with multiple agreements.
- Dedicated management solutions – Solutions such as DealTrack offer a structured, intelligent approach to rebate management, with highly advanced analytics functions which allow your business to manage complex trading agreements reliably and efficiently, minimising risk and uncertainty.
For more information, download our guide “key drivers for effective rebate management”.