Whilst working with a number of organisations across industry sectors such as building materials, buying groups and wholesale and distribution, we have seen a large variety of very complex supplier rebates and trading agreements. These very often involve incredibly complicated performance-based calculations with seemingly endless permutations, and on top of that rebate agreements are subject to periodic review and change.
In the building materials sector for example, there are further complications when you factor in multiple SKUs — tons/bags of cement, different lengths of timber etc.
While some companies manage the rebate accounting process effectively, for the vast majority of organisations keeping track of all the information needed in order to make rebate claims is still very much a manual accounting process. This lack of automation leads at best to time delays and at worst to errors and missed rebate claims. Owing to the size of margins, the smallest miscalculation could have dire financial consequences.
So what are the 4 things you should avoid to maximize your rebate earnings?
- Stop relying on spreadsheets and manual processes.
If your business only deals with a relatively small number of complex trading agreements, spreadsheets may be a viable option. But as the volume and complexity of deals increases, the possibility for error surges exponentially. The more data that is dealt with manually, the more chaotic it becomes, posing significant financial risks to your profitability.
Added to that are compliance risks. We have seen examples in the press of companies over or understating their rebate accruals because they didn’t have adequate rebate systems in place.
- Stop relying on your suppliers to calculate rebates for you!
This came as a surprise to us, too! Many companies rely on their suppliers to account for their rebate claims. And conversely, many supplies rely on their customers. Deferring this responsibility requires a huge leap of faith that could lead to rebate miscalculations. If you don’t have the evidence yourself, then there is no way you can disagree with your supplier in the event of a smaller than expected rebate payment. As lovely as they are, those “hoped for” cheques in the post, are not a viable way to manage profit and cash flow.
- Stop going into supplier negotiations blind
Make sure you have all the information to hand about past purchases, trends and projected future volumes. Check you have the ability to model what different contract options might look like and be prepared to negotiate rebates on an equal footing with your suppliers.
Taking that a step further, and sharing rebate data with your suppliers is the first step towards mutually profitable growth.
- Stop creating work-arounds to solve the inadequacies of your ERP system.
Some ERP systems have limited functionality to help with rebate management, others have more flexibility, but most don’t appear to handle every type of rebate contract. ERP systems generally lack the ability to manage the complexities involved with multiple rebate deals / special pricing agreements.
Added to that, some organisations have multiple ERP systems across divisions and geographies, so there is very little hope that the company as a whole can create a consistent process for managing rebate deals. Even very large businesses with top of the range ERP systems still find the need to create spreadsheets or other processes outside of their ERP system to keep a detailed track on supplier agreements, purchases made and rebate claims.
(For more information on this point, please see our blog “Why your ERP system won’t solve your complex vendor rebate problems“)
If you’re managing rebate claims in excess of 5m per annum, then a dedicated rebate management system such as Enable offers a proven return on investment.
Enable provides a structured, intelligent approach to rebate management, with advanced analytics functions which allow your business to manage complex trading agreements reliably and efficiently, minimising risk and uncertainty.