If you’re a builders merchant you’ll know how essential it is to ensure every penny counts in terms of your bottom line. So, it’s even more crucial than ever that you don’t miss out on any of the, often significant, sums due to you through rebates.
Indeed, profitability for building materials suppliers is often very closely dependent on the amount of rebate they can negotiate and claim and many businesses across this sector tell us that the sheer volume of categories and the complexity of rebate deals means that administering rebate claims is a mission critical element of their business which can be the difference between a decent year and a great one.
100% of our customers have identified previously missed rebate claims after implementing our Dealtrack system and we have even seen cases of missed rebate claims amounting to 7 or even 8 figure sums.
And yet across the globe, building materials suppliers are making the same mistake of relying on antiquated methods such as manual spreadsheets to take care of this complex and crucial part of their company’s bottom line.
Too many people involved in the rebate process
One of the overriding issues that make it hard for rebate claims to be efficiently handled is the familiar ‘too many cooks’ scenario.
Most companies who deal with rebate claims have several people involved in the process including members of the commercial team who negotiate contracts that include vendor rebates; buyers who place orders under those contracts; people responsible for sales; pricing rebate accountants who work out what to claim and, of course, the building materials suppliers themselves.
That’s a lot of moving parts that can fail or simply have an off day.
Even beyond this, though, there are still a myriad of ways in which builders merchant can still miss out on claiming all rebates due. The ten key areas can be summarised as below:
- reliance on suppliers to calculate rebate due
- rebate isn’t calculated in detail
- new product introductions by the supplier are missed
- disparity between the supplier agreement and the information in the finance system
- deals do not perform as expected
- deals are not clear, or not completely agreed
- commercial team has no visibility of supplier products in your system
- commercial team lacks historical information for negotiations
- missed rebate thresholds
- lack of visibility of available rebate at the point of sale
So that’s a lot of potential pitfalls that can lose a builders merchant money. Furthermore, even when companies feel they have none of the above issues, we have still managed to find at least 4% of annual rebate income that has not been claimed.
So, while many ERP systems already have a way of recording contract information and a vendor rebate module or elements of purchasing software that allow for rudimentary recording of rebates owed, our own research has found that no ERP system provides all of the functionality that is typically required by companies who trade with complex rebate deals. They simply lack the granular level of functionality needed to carry out detailed matching of actual purchases and sales against those supplier agreements.
The right rebate management system
So if that’s where things are going wrong, where and how can a builders merchant put it right?
Simply put, you need the right rebate management system that offers a complete solution that covers all aspects of your trading relationships from contract to claim and should have the built-in ability to consolidate with any kind of system – a rebate management system is data hungry, requiring information to be passed between it and sales, contracts, purchasing, goods received, invoicing and other elements of your financial systems.
In addition to these primary concerns, we have pinpointed 10 further areas that should be essential parts of your rebate management system of choice. They are:
Workflow, approval governance and individual sign off limits should ensure that all agreements are clear, visible and exist in a single electronic form available to appropriate people, including suppliers.
Clear, systematic methods for creating any type of deal to eliminate different interpretations and calculate profitability with accuracy.
Automated accruals recording
Controlled and prudent financial accruals recording — within user-defined rules.
Earnings calculations at all levels
Granular earnings calculations showing margin and profitability at item, category, branch and overall levels.
Forecasting at all levels
Automated forecasting of turnover and rebates, again at a granular level with no human dependency. This is vital for targeted deals and for determining when renegotiation would be appropriate.
Threshold visibility for commercial team
Ability for commercial team to see approaching rebate thresholds to enable them to make good decisions on purchase volumes. Risk reward metrics and performance tracking against incentive targets available to all concerned — not just procurement.
Automatic allocation of rebate cash received against deals in order to track deal balances and profitability with audit trail for any agreed claims write-offs.
Ability to cope with “specials” in a way that is completely transparent to all concerned.
The team that supports you needs to really understand rebate management and have experience of modelling all the “exceptions” that you may think you have.
Since a rebate management system needs to integrate with lots of other systems, the best platform is a cloud-based solution. This puts the support and maintenance firmly in the hands of the software author, leaving you to get on with the job of negotiating the best rebate deals you can.
Few businesses have the luxury of being able to miss out on vital rebate funds they are entitled to and the time has come to select the right rebate management system to ensure your business has a great year, not just a decent one.
This article was first published in the Builders' Merchants News August 2018.