What is a rebate? And how do they work?
Rebates were “invented” as a way of driving sales growth without simply reducing the contract price. By agreeing these retrospective financial incentives based on actual sales, both the supplier and the distributor are working together to drive market share and growth.
Rebates often act as either a reward for loyalty or as an incentive for increasing trade with a specific trading partner because the benefits of a rebate agreement tend to improve as trade with the trading partner increases.
Rebates can have a significant impact on an organization’s bottom-line meaning they should be recorded as revenue. 4% of potential rebate revenue typically goes unclaimed. For many organizations this can mean they’re missing out on hundreds of thousands of dollars each year.
Whilst many core business systems have some functionality to help monitor trading agreements that involve vendor rebates, most have neither the flexibility nor the extensive range of functionality that is needed to support the increasingly complex world of rebate management.
What is rebate management?
In simple terms, rebate management is the process of recording rebate agreements, tracking purchases and sales against those agreements, and managing accruals and rebate claims in a timely manner. However, with a dedicated rebate management system it can become much more with the ability to forecast benefits, model proposals, determine net net margins and influence trade activity to maximise returns.
Accurate rebate management can be a difficulty for any business, irrespective of the scale of their rebate programmes. Often, businesses dedicate whole teams to using legacy systems to follow broken processes, reducing output and opposing the anticipated benefit of the rebate agreements which commercial teams have spent resource negotiating.
For small to medium businesses, rebate can make up the majority of their profit and for large businesses even a small improvement in procedure can lead to the discovery of millions of dollars, therefore it’s essential for any company who are involved in rebate to regularly evaluate their existing rebate management process and identify areas for improvement. This all starts with a dedicated rebate management system.
Many businesses start out managing their rebates in spreadsheets, such as Excel or simply rely on data from trading partners, quickly finding out that it’s a slippery slope! This soon graduates to using ERP systems or even systems created internally, however these systems are not created by experts in rebate and often fail to handle even deals with the slightest of complexities. Further to this, ERP and internal systems are often limited in functionality, essentially operating as expensive and unintuitive calculators.
This is where a rebate management system comes in
A rebate management system collects information from core business system(s), enables deals to be modelled and monitored, and feeds back timely accurate rebate information for sales, purchasing and finance. The best solutions even offer an overview for the c-suite allowing all stakeholders to easily access relevant information.
This information allows you to accurately systemise and automate every element of a rebate deal, such as, the ability to record any type of agreement, track purchases and sales against agreements, extensive and granular reports, forecast (accounting for seasonality and specialist industry knowledge), and much, much more.
If you’d like a more in-depth understanding about how rebate management systems work, you might find this video helpful.
So, how will a rebate management system help my business?
There are many proven benefits of using a rebate management system over managing rebate manually. For many, that lack of functionality has resulted in missed rebates and poor accrual accounting. But worse than that, if your business doesn’t support rebate accounting fully, then the whole purpose behind creating deals involving rebates to increase profit, is missed and you are wasting resources for no benefit.
Added to that, IFRS 15 is moving auditors to verify that companies who make trading agreements involving rebates have a robust process in place for determining appropriate accruals and profit reporting. Further to this many ERP solutions, internal systems or Excel based processes neglect to include a sound audit log of all changes or an approval workflow.
Improve your margins
A dedicated rebate management system should contain an extensive reporting suite to report and analyse the outcomes of the automated calculations. Rather than thinking of a rebate management system as a calculator, you should see it as almost a niche business intelligence tool.
With the correct information displayed in one place you can easily identify which included products and trading partners deliver the highest margins and conversely, which ones do not. This will inform any future negotiations and allow your commercial team to spend less time worrying about keying deals into a system and more time negotiating the most beneficial deals for your business.
With a truly collaborative rebate management system, negotiation and approval can all take place in the same system allowing you to model proposals and understand their potential benefit before engaging in discussions with your trading partners. Having true visibility of your net margins throughout the rebate process will empower your business.
Increase order volumes
When the complexity behind entering, tracking and calculating incentive rebate agreements is removed with a dedicated rebate management system, you and your trading partners can focus on utilising the different types of incentive rebate agreements to benefit each other.
A system should be able to provide you with clarity on any opportunities you may be close to realising so that you can understand whether you should increase orders with certain trading partners to increase return on investment or perhaps engage with them about adjusting the agreement as your forecasts are predicting you could far exceed your current targets.
Furthermore, having the visibility to offer promotional deals for new products, support marketing of certain products at specific points throughout the year and reward the performance of your best or most loyal trading partners will all increase volumes year on year and help to forge better trading partner relationships. Through this, your company can push its brand out into the marketplace and become more competitive.
What can our rebate management do for you?
Rebate management should be a key focus of all involved in rebate, regardless of the industry that you operate in or your role in the agreement. Unlike most traditional contract management systems and ERP’s which offer rebate functionality, DealTrack handles over 90 different types of rebate agreement as standard. This is complimented by timely updates of purchasing activity from disparate systems and the ability to model and approve new trading agreements. DealTrack takes care of all the detailed information and business processes needed in order maintain compliance and facilitate business growth through optimised rebate management while providing maximum visibility to the user.