Every business should keep its rebate agreements transparent, recording each step in the process so that it can be traced back to the original source. To get the whole financial picture of your rebate deals you need to identify and fix any critical errors and assess ways to improve your rebate accounting process. To do this, you need access to a complete and reliable audit trail.
Enable Blog — Rebate Accounting
For decades, many of the world’s strongest trading relationships have been built on rebate agreements.
The people trusted with managing these mutually beneficial business deals have played vital roles. But by necessity, they’ve been cogs in a much larger machine. Their time has been absorbed by administrative tasks: collecting and keying-in data, performing audits, corresponding over disputes.
Now, the limits of rebate management are expanding.
Businesses are realizing the need for—and immense value of—even closer collaboration with their suppliers and customers. And at the same time, technology is automating rebate management administration, enabling deeper strategic insights, and supporting new ways of working together.
Liberated from mundane tasks, empowered to analyze and collaborate...
Ambitious rebate analysts and rebate accountants are redefining their roles—to supercharge their careers, and help their companies thrive.
In today’s business world, the finance department including the CFOs are expected to deliver accurate information more quickly than ever. But with large volumes of information, data is spread across an array of sources such as spreadsheets, emails, and paperwork; which only increases the likelihood of errors and inconsistencies in the process.
The complexities involved in managing complex trade agreements and rebate accounting and retrospective discount payments are often difficult to model in manual systems such as spreadsheets and basic accounting software or rely on their suppliers to make the calculations. Organisations opting to calculate, forecast and accrue rebate income in this way leave themselves at risk of inaccuracies, missed opportunities and supplier disputes.
To improve upon your current rebate management system, it’s necessary to take full control of the rebate accounting process and the difficulties that arise from trade agreements in order to:
• remove the risks associated with manual rebate accounting processes
• deliver a streamlined process for handling complex trade agreements
• provide a foundation for growth in business profitability and revenue
1. Spreadsheet replacement
Manual rebate accounting processes, such as calculating rebates in financial spreadsheets, can’t successfully do the job alone in large companies, or in fact even in small companies if they’re managing complex trade agreements with various combinations of rebate arrangements.
Wherever possible it’s advisable to avoid using financial spreadsheets as a stand-alone rebate management system. Not only is a spreadsheet environment limiting in its inability to handle volume-based complex trading agreements, it’s also open to risk.
Calculating retrospective income manually leaves organisations open to error and inaccuracy, which in turn impacts reporting, forecasting, profit margins, cash flow and audit compliance. It’s essential to implementing rebate accounting processes that support what your financial spreadsheets might be missing.
When implementing Enable’s rebate accounting software, many companies choose to set up existing deals first to find out what is missing, and are surprised that despite good controls, and comprehensive financial spreadsheets a substantial amount of rebate income has been missed - around 4% on average.
2. Bridge the gap between purchasing and finance teams
The inconsistencies that surface from managing rebates and retrospective income with financial spreadsheets are often due to miscommunication between purchasing and finance departments. Whilst blame shouldn’t be attributed to either party, after purchasing close a deal, clarification of the intricate details that make up each agreement type is often "lost in translation".
Improved communication and collaboration between finance, procurement and commercial departments is a key accounting process to determining the exact details of each contract. These may have a number of rebate elements such as product-specific incentives, overall growth incentives, margin maintenance, specific promotions, and so on.
Allowing time for contract handover and alignment or installing a program that provides a systemized approach, ensuring that both teams have access to this information will provide greater accuracy of data and rebate calculations plus improve rebate accounting processes.
3. Access for all
Multiple people manage supplier contracts across various teams within organisations - from both the finance and purchasing teams. Implementing a single access point for purchasing teams to input their deal information and ensure internal management sign-off, as well as external supplier sign-off brings numerous benefits. This helps bridge the gap not only between finance and purchasing, but also between your organization and your suppliers.
The transparency that is available when deals can be signed off and sent back electronically improves relations with suppliers, whilst also avoiding any potential for dispute. And by ensuring accurate data is available to negotiate with and that deals can be quickly signed off, your rebate accounting processes are streamlined for ultimate speed, efficiency and accuracy.
4. Integrate with your ERP system
When considering a rebate management system it’s important to look for a package that enhances the rebate accounting processes you already have in place. If your ERP system doesn’t handle all the complexities of your rebate agreements, select a specialist rebate management system that can take data feeds from your ERP systems and deliver a complete solution.
Rebate management systems can significantly improve your rebate accounting processes by providing a fully visible audit trail and ensuring the mistakes that are often made in manual rebate management systems are entirely avoided.
5. Systematize complex trading agreements
Any complex trading agreement for rebate accounting that sits in a filing cabinet — either real or virtual — waiting to be examined at the end of the agreement period is a clear route to failure:
• failure to meet the goals set in the trading agreement
• failure to claim rebates owning
• missed rebate accounting opportunities to sell more and achieve a higher level of rebate
• failure to understand the true current net net price when quoting for new business
The ability to model every aspect of a rebate deal and make it available online is a clear starting point to improving your rebate accounting processes. The rebate management software should be able to model all deal dimensions from the type of rebate deal being made, to the member or branch rules that apply to each of these, the turnover bands they fit into and all the intricacies in between. The complexities remain the same, but the input and management of these rebate accounting processes should be made available to everyone concerned — online, any time.
6. Map transactions from your core purchasing systems to your supplier agreements
Now that you have your trade agreements systematized, the next stage is to integrate all your systems that are involved in buying products under those agreements. Rather than using manual rebate accounting processes such as inputting purchases made, goods received, sales transactions etc against trading agreements, these should be automatically reconciled to the online trading agreement.
In this way, users (finance, rebate accountants, buyers and sales teams) can have access to real-time accurate information about purchases against contracts which in turn is needed to calculate rebate earnings, discount levels achieved, true margins and net net pricing.
7. Automate rebate and pricing calculations
The next step to improving your rebate accounting processes is to automate those calculations that are essential to your profitability and ultimately, business growth.
Calculations needed might be based on purchase data, goods received, sales transactions and/or the data reported by suppliers based on the agreed parameters of each deal ensuring accurate, visible and timely accruals.
Automating the calculation of rebates based on transactions and agreed contracts provides accurate up-to-date data. This can be used:
• by purchasing teams in order to consistently negotiate from a position of strength
• by sales people to understand the accurate margin information when negotiating with customers
• by finance to collect rebate income and report profitability
8. Introduce automated rebate alerts
It's all very well being able to report after the fact, but you can really drive business profitability by automating your rebate accounting processes in the form of alerts for potential missed margins, contract renewals, impending incentive targets and so on.
True cost and margin alerts can be used to warn staff when deals and opportunities could be missed, or need to be chased. Buy price, sell price and true net cost price can be made available and used to prompt these margin alerts. This helps to avoid margin—damaging purchase decisions that can result from the continual variation in margin that happens with very complex rebate deals.
Proactive notifications can be raised when your rebate contracts need to be renewed, when contract sign-off is required, when incentive targets are approaching/likely to be missed, or a change to a contract is pending review.
Make missed rebate accounting opportunities a thing of the past!
9. Provide buyers with the ability to model future deals
To really excel at rebate accounting negotiations, buyers need to have the ability to model deals based on past purchases and future projections. Whilst this is possible by exporting data and using a data warehouse or even a financial spreadsheet, those rebate accounting methods are reliant on building your own models for capturing data and creating forecasts.
A sophisticated rebate management system, on the other hand, already contains all the data that buyers need to improve their rebate accounting processes and should be designed to incorporate the modelling functionality that they desire.
Purchasing departments should be able to replicate former deals and alter their data dimensions to forecast parameters for new contract negotiations, as well as those coming up for renewal.
10. Give suppliers access to your online contracts
With supplier contracts being negotiated and managed by multiple people across several teams within your organisation and within your suppliers’ businesses, a collaborative portal is a highly efficient way to improve your rebate accounting processes. This will make sure everyone has visibility and every agreement has the appropriate approvals in place.
This supplier portal ensures that both you and your supplier share an identical version of the trade agreement, forging a mutually agreed understanding whilst allowing internal management sign off, as well as external sign off by supplier.
A supplier portal puts an end to disputes over rebate accounting claims as all information is clearly visible to all parties.
11. Implement a new rebate accounting solution
The best way to improve your rebate accounting processes? For absolute precision, consider implementing rebate management software that automates both reporting and alert processes to ensure that no opportunities for discounts and rebates are missed. These solutions are specifically designed to meet the needs of organisations with high numbers of supplier agreements containing complex deals elements.
Enable’s rebate management software systemizes the entire rebate accounting process from negotiation to claim and ensures accurate, timely, efficient operation for all trading partners. By storing, processing and analysing every tiny detail about deals, Enable acts as a platform for mutually profitable growth.
If there’s room for improvement in your organization’s current rebate accounting processes, download our guide: How to manage complex rebate contracts effectively for additional information on the solutions available to you.
If you’ve ever been confused about terminology relating to rebate management, you’re not alone! The world of rebates is a complicated place at the best of times, especially when there can be multiple different names for the same thing.
Firstly, if you’re reading this blog you will most likely to be familiar with what an ERP system (enterprise resource planning) is, but as a reminder it is a type of software that manages and integrates a company’s financials, supply chain, operations, reporting, manufacturing, and human resource activities into one system. Examples of ERP systems include NetSuite, Oracle, SAP, SAGE plus many more.
While accounting excel spreadsheets are undeniably easy to use, widely available and highly adaptable much has been written about the danger of using them in contexts where there is just too much information, or where that information is too important to risk to human error. A prime candidate is the case of rebates: both customer rebates and supplier rebates, where even the smallest error can result in losses of tens or hundreds of thousands of dollars. Since accounting excel spreadsheets are so easy to use it is also easy to make mistakes, to change data, make errors and worse, not spot the errors and carry on with business as usual. The result is that incorrect information can cause issues when you are trying to understand your business’s financial position down the line.
In business, procurement and finance are two separate departments, working alongside one another within the organisation. The procurement function is about spending the money well and driving more for less from suppliers, and the finance team is all about keeping the balance sheet in check and driving profitability.
Customer rebates are what a seller pays to another business whether they’re a direct customer, an indirect customer, or a buying group. Customer rebates are a key contributor to the flourishing Deal Economy, which last year was worth $500bn in the US alone.
Finance and accounting departments tend to rely on Excel spreadsheets to manage a growing business’s financial data because they know it, they understand it and old habits die hard. But human entry error is always a risk which we saw a few years ago when news about Excel miscalculations at JP Morgan rocked spreadsheet users’ worlds. A simple cut and paste excel error cost JP Morgan $6 billion and resulted in dramatic headlines like “Why Excel is the Most Dangerous Software in the World”, but it wasn’t the first time accounting spreadsheets had caused massive business disruption, nor will it be the last.
Topics: Rebate Accounting