SPA

The need for a system to manage special pricing agreements (SPAs)

Posted by Craig Flynn on December 18, 2018 10:38:00

Ah yes, rebate claims. An evil necessary in the land of SPAs (special price agreements). While they’re inherently necessary to realize intended profit on the sales transaction, they’re a pain in our side when it comes to handling the issues that plague the reconciliation process.

But the process of reconciling product rebate claims is full of information that is largely dismissed, not getting any attention to the voice that tells us the very issues we continue to tolerate rather than fix. Let’s take a look at a couple of these issues…

Rounding

There may be differences in how the manufacturer’s business system is programmed to handle pricing compared to the and the distributor’s business system. The manufacturer may take their price out passed the third decimal placement, while the distributor only uses two. This inevitably will create a pesky discrepancy that the distributor (most likely) will have to deal with and write-off the difference.

Unrenewed SPAs

This is a good one, well really, no it’s not!

The distributor’s sales rep forgets to renew or "assumes" he can renew an expired SPA. He will produce an order against the SPA pricing and in his world, he is one happy guy. However, upon reconciling the claim, it comes to us as a surprise that the manufacturer refuses the claim.

This causes someone to have to take the time to reconstruct the sale by going back to the sales rep to ask for the supporting SPA paperwork.

The sales rep may be negligent in SPA process compliance in that he didn’t update the business system. BUT, he may have an email from the manufacturer rep that states the SPA could be used.

In this case, BOTH SALES REPS need their ears boxed for not updating their respective business systems. Verbal or emailed price agreements outside a formal process just don’t work and cause waste. 

Did you know an average of 4% of all claims are entirely missed?

This means that the distributor will most definitely have a book to physical difference and will take a hit on their bottom line earnings. And, while this happens, the manufacturer realizes a pleasant adjustment to enhance their bottom line earnings.

So why do distributors miss claim opportunities?

  1. Complicated jobs with several sales and return transactions makes the process muddy. Distributors may use bolt-on job management systems that further complicate the SPA price tracking necessary to support the intended profit on every sales transaction. Finding someone who has the time to ensure the programs are cohesively working properly on every transaction is assumed rather than studied. 

  2. Distributors will hold invoices for some reason unrelated to the SPA and could miss a window for claiming. 

  3. Failure for the distributor to communicate well with the vendor causes all kinds of headaches. SPAs expire without proper management and oversite.

  4. The SPA process is complicated, making management of the SPAs a chaotic task.

  5. Did you know there are up to 12 people involved in one SPA for just one item? Not everyone understands all the steps that are necessary to support an SPA. It’s surprising the distributor and manufacturer get anything right!

  6. Human error. The person responsible for the claim makes a mistake.

  7. Program error. Reporting issues can cause transactions to be missed.

  8. Some suppliers are easy to work with while other are difficult by insisting the distributor follows a more complicated claim method.

In the end, the distributor should never have to take a hit to their bottom line due to a SPA. No doubt, managing all the SPA agreements and price sheets is a monumental task. But, if these deals are not managed correctly with focused resources and well-trained employees on the front end, the back end will suffer. 

10 Reasons Rebate Accountants Fail to Claim 100% of Rebate Due

Topics: Rebate Management System, Special Price Agreements SPAs