rebate accounting

Why your ERP system doesn't cope with rebate accounting

Posted by Andrew Butt on June 18, 2018 10:16:59

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.

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. But we have found that in a very complex trading environment the standard module is incapable of modelling all the product / price / branch / margin combinations that might be required. Therefore, we have found no ERP system provides ALL of the functionality that is typically required by companies who trade with complex rebate deals.

The fundamental question you should ask yourself is:

Should your ERP system control the types of agreement that you can negotiate? Or should procurement have flexibility to agree the most advantageous contracts for the business?

Clearly, it should be the latter.

What can ERP systems fail to do?

If your company is dealing with complex trading agreements involving rebates most ERP systems can fail to:

  • model every aspect of a trading agreement so that all nuances of the agreement can be executed using the ERP system.
  • provide clear information at point of sale about true margins and the real cost of items.
  • provide completely transparent and auditable profit reporting at group level.

The main reasons why ERP systems don’t cope with rebate accounting

Our research has shown that, no ERP system copes with managing rebates to the same degree of both accuracy and simplicity as DealTrack. The reason behind that is that rebate deals can be quite complex and fields prompting for rebate amount / percentage and rebate threshold are inadequate to say the least.

  • There are many different types of rebate calculation

Rebate agreements are created to drive growth, so suppliers will often change the agreement from year to year.  They might add other incentives like marketing support, and they may focus on a product line or category to provide exceptional rebate agreements.

We have seen over 300 different types of rebate agreement — all of which need to be recorded in order to make the right claim.

  • Not all aspects of the contract can be systemised

We’ve seen many examples where a contractual agreement is a document that sits outside the ERP system and relies on manual interpretation to get the details replicated in the ERP system.  Many companies end up with some information automated in their ERP system but having to refer to paperwork or other electronic documents for other information.

For some, that can be the start of their problems; the misinterpretation of contract documents and in ability to transcribe contract information into a system.

For that reason, spreadsheets are often the preferred route to getting more accuracy. But spreadsheets rely on accurate information feeds and are open to manual error and problems with version control.

Why DealTrack is an alternative system to integrate with your ERP system

The best of breed vs ERP debate has raged ever since ERP packages became available, but a ‘best of breed’ solution like DealTrack has been proven to be the best option for supporting business processes such vendor rebates, and complex rebate accounting… a bold claim, let’s look at some details.

  • From a functionality perspective, SAP ERP can deal with simple rebate deals e.g. those earning rebate amounts that are either fixed or a percentage of total spend. If you start to add complexity into the rebate ‘mix’ then SAP often fails to provide a solution.
  • Rebates are generally negotiated at a group level to maximise profit margins and not all organizations or parts of the organization run from a single ERP solution. Therefore, rebate accounting needs to sit across the different ERP solutions to be effective.
  • Unlike most ERP systems, DealTrack is an optimised vendor rebate management system, and has been built and updated specifically for that purpose. The needs of finance, procurement, purchasing compliance and rebate accountants have been carefully thought through and incorporated into the functionality. 
  • The ERP system approach tends to be transaction-centric, whereas authoring, approving and tracking deals is a collaborative process facilitated by workflow and partner portals in DealTrack. 
  • The approach taken when developing DealTrack has been to put a magnifying glass on the processes around negotiating, accounting for rebates and claiming against rebate deals. DealTrack is designed to be flexible and enable procurement to be creative in agreeing deals. 
  • The software has been developed from the ground up to deal specifically with the challenges of global rebate management, delivering a structured approach to managing complex trading agreements, supplier rebates and supplier rebate agreements. In addition to the comprehensive functionality included in DealTrack, the user interface has been designed specifically for the needs of finance and procurement professionals.

DealTrack has proven significant benefits to the businesses that use the software. The system integrates with ERP systems, and collates ERP data against rebate deals in DealTrack in order to calculate accurate, granular rebate earnings.  DealTrack holds all the detailed information needed in order maintain compliance and facilitate business growth through optimised rebate management.

“4% is the number of rebates companies typically find have gone unclaimed when they first implement DealTrack”

Below are some of the reasons our customers have given for choosing DealTrack:

  • Despite having systems already in place, they had a feeling that they were not claiming everything owed to them but lacked the means to prove it.
  • They were resorting to spreadsheets to compensate for inadequacies in their current ERP system.
  • The business had grown through merger / acquisition and they had more than one ERP system containing the information needed to negotiate and report on rebate deals.
  • Accurate rebate claims processing relied on the knowledge of a few people and this was felt to be a risk to the business.

If your ERP system isn’t coping with the demands of your financial controller, your auditors and your procurement teams in terms of managing rebates you may want to consider a specialist rebate management system.  Find out more about DealTrack — designed from the ground up to integrate with ANY ERP system.

New call-to-action

Topics: Rebate Accounting, vendor rebates, ERP System