Supplier rebates should lower your costs, while helping you form lasting, mutually beneficial relationships with the businesses you buy from.
But managing rebates from suppliers can be such an administrative headache that firms rarely realize the full value of these programs—and 4% of potential rebate revenue goes unclaimed each year.
We’ve created this page to help you understand supplier rebate programs (also known as vendor rebates) and make sure you’re claiming every dollar of rebate revenue you can.
Just jump to the topics you’re most interested in using the links below.
- What are supplier rebates—and what can they do for us?
- What are the most popular types of supplier rebate program?
- What does supplier rebate management involve?
- What tools do organizations use to manage supplier rebates?
- Why do firms struggle to manage vendor rebates effectively?
- What could poor supplier rebate management be costing our business?
- What should we look for in supplier rebate management system?
- Who uses supplier rebate management software?
- What’s our first step to better supplier rebate management?
1. What are supplier rebate programs—and what can they do for us?
A rebate is “The return of a portion of a purchase price by a seller to a buyer, usually on purchase of a specified quantity, or value, of goods within a specified period.” (Thanks for the neat definition, businessdictionary.com)
Supplier rebate programs are simply rebates seen from the buyer’s perspective. They’re also known as vendor rebates and rebates receivable.
Distributors and buying groups often have rebate agreements with multiple suppliers. These vendor rebate programs help them to:
Protect and boost profit
Revenue from supplier rebate programs can have a significant impact on an organization’s bottom-line
Increase revenue with rebates
Target-based rebates can provide a compelling focus for sales activities
Supplier rebate agreements encourage joint business planning, and long-term, mutually successful partnerships
2. What are the most popular types of supplier rebate program?
A vendor rebate program can take many different forms:
- Volume rebates
The vendor pays a rebate when your purchases or sales of a certain product or product category exceed an agreed volume. This rebate is applied retrospectively for each unit sold.
- Value rebates
As above, the vendor pays a rebate on your purchases or sales of defined products or product categories. However, the rebate rate may depend on the overall value of those transactions and usually, but not necessarily, applies back to dollar one.
- Co-op funds
The vendor matches (co-ops) the funds you allocate to a variety of marketing and sales events.
- Market development funds (MDFs)
The vendor funds sales and marketing campaigns designed to generate sales of their products.
- Special pricing allowances (SPAs)
The vendor funds a distributor to supply products to a defined market segment at a specially reduced price.
3. What does supplier rebate management involve?
Rebate management involves the close co-ordination of buying and selling efforts, based on effective margin assessment—both before and after the purchases or sales are made.
1. Rebate agreement negotiation and analysis
Maximizing the value of supplier rebate programs to your business means devoting time and effort to the planning and analysis of proposed rebate agreements—whether you’re striking a deal with a new vendor, or renegotiating an existing agreement that’s reached the end of its term.
2. Securing internal approval and sign-off
Internal approval processes can be lengthy, especially for high value rebate agreements and for organizations with complex structures. Establishing clear audit trails for each product category is key.
3. Altering agreements mid-term—and adding ‘bolt-on’ deals
Market conditions can change fast. And when they do, altering a live rebate agreement—or adding additional, ‘bolt-on’ rebate deals—can have benefits for all parties.
It’s vital, however, that these developments are recorded accurately by both suppliers and their distributors and resellers to avoid disagreements further down the line.
4. Tracking progress against supplier rebate programs
Rebate programs should drive sales. For that to happen, organizations must track progress against rebate agreements throughout the deal’s term, and ensure frontline salespeople understand where progress needs to be made.
Tracking progress is especially important towards the end of a financial period. Some rebate agreements define a range of rebate bands, allowing suppliers to offer different levels of rebate (e.g. 2%, 3% etc.) depending on how much of a product is purchased. Since each rebate level is applied retrospectively, narrowly failing to qualify for a higher band can see organizations miss out on significant amounts of rebate revenue.
5. Forecasting supplier rebate revenue and calculating rebate accruals
Accurately forecasting sales, purchases and their associated revenue is vital to the accurate calculation of rebate accruals—and, ultimately, profit and loss.
Organizations must therefore develop a structured, business-rules-based approach to vendor rebate accounting, forecasting rebate revenue and creating a clear audit trail that fully justifies accrual decisions.
6. Claiming supplier rebates
An organization can easily have hundreds of suppliers, and tens of rebate deals with each. Many may be collected monthly.
To handle such complexity, robust systems and processes must be put in place to manage the timely and accurate claiming of all rebate revenue earned.
4. What tools do organizations use to manage supplier rebate programs?
As we’ve just seen, supplier rebate management is a complex discipline, frequently spanning multiple business divisions and teams. Distributors and buying groups generally rely on one or more of the following tools:
Using spreadsheets for supplier rebates
Spreadsheets are the most common tool for recording, tracking and managing supplier rebate programs. They’re also the least effective. Organizations quickly accumulate multiple sheets, with multiple owners. Data input is slow and error-prone. Forecasting and reporting is slow and inaccurate. As a result, rebate thresholds—and business opportunities—are all too frequently missed.
Using ERP systems for supplier rebates
Today, most popular ERP systems offer some level of rebate management functionality. In our experience, however, they struggle with more complex rebate agreements—and none support all of the 300+ deal types we’ve encountered over the years.
What’s more, since they’re not actually focused on supporting customer or supplier rebates, ERP systems don’t cover the full breadth of activities involved in rebate management.
The result? Organizations turn to spreadsheets to track the deals that won’t fit in their ERP system, and once again, opportunities and rebate revenue slip through the cracks.
Using vendor portals for supplier rebates
Suppliers will often invite distributors to track the status of their sales and invoices through a web-based portal. While such sharing of data is to be celebrated, distributors need their own systems to ensure they aren’t solely basing their claims on vendor-curated information.
Using dedicated rebate management software
Increasingly, organizations are choosing to invest in dedicated systems to effectively handle supplier rebate management. A good supplier rebate management system can seamlessly integrate with existing ERP systems, while enabling an organization to plan, structure, track, claim, report on, and account for even the most complex supplier rebate programs.
5. Why do organizations struggle to manage supplier rebate programs effectively?
For many distributors and buying groups, the sheer volume, variety and complexity of their rebate deals with suppliers makes effective management a real challenge.
Often, three process issues—common to most organizations—further compound the problem:
1. There’s poor communication between functions
The deals that commercial teams strike with suppliers need to be effectively communicated to finance and sales, so everyone’s activity is aligned.
2. There’s no structured process for producing rebate agreements
It’s all too easy for deals struck in conversation to become word documents or email chains. To ensure deal terms are consistent—and performance against them trackable—a more structured supplier rebate agreement creation process needs to be in place.
3. There’s no contingency plan
Many organizations rely on a specialist to handle accounting for supplier rebate programs — from calculating the rebates an organization is due, to reflecting this in budgets and forecasts. When this individual is sick or on vacation, it’s all too easy for records to not be updated, and for rebates to go unclaimed.
6. What could poor supplier rebate management be costing our business?
- Lost rebate revenue
As noted above, 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.
The Deal Economy—the money that manufacturers pay distributors and resellers in rebates, market development funds and special pricing agreements (SPAs)—is massive. It’s currently worth an estimated $500bn a year in North America alone.
- Inaccurate budgeting and forecasting
Poor supplier rebate management can easily lead to inaccurate budgeting and forecasting—and unwelcome shocks for your business and its investors.
- Compliance and reporting headaches—and penalties
Accounting for supplier rebate revenue can get very complicated, very quickly. Get it wrong, and you risk creating misleading accounts and falling foul of financial reporting regulations.
7. What should we look for in a supplier rebate management system?
If you decide to invest in dedicated software to take control of your vendor rebates, you’ll want to ensure it ticks the following boxes.
- A platform for closer collaboration with trading partners
When it’s easy to share and collaborate on information with your trading partners, misunderstandings are less frequent, and joint business planning is simpler and more effective.
- A single source of truth for rebate activity
Your solution should help you end the complex flow of spreadsheets between sales, purchasing, commercial and finance teams, providing a central location for all activity related to supplier rebate programs.
- Integration with ERP and pricing systems
You’ll want a rebate management solution that’s simple to integrate with your ERP and pricing systems—so it can automatically extract information like product and transaction data, and return information like predicted rebate rate per product, and monthly rebate accrual numbers.
- Rebate agreement analysis
Your solution should empower you to analyze proposed rebate deals based on your historic data, so you can negotiate the best possible agreement for your organization.
- A structured and formalized library of live agreements
The clearer your view of live supplier rebate agreements, the easier it is to keep your sales efforts focused.
- Clear tracking of incentive deals
Are you going to reach that next rebate band? Or fall short by a handful of sales? Your solution should let you track progress against deals at a glance, minimizing the risk of missed targets and lost revenue.
- Automatic and in-depth calculations
Automatic supplier rebate calculation helps minimize opportunities for human error, while saving finance teams a huge amount of time—and a whole lot of stress. You’ll want a solution that lets you calculate rebate earnings for every transaction line.
- A robust and comprehensive audit trail
So you can be confident in your accruals, and rapidly demonstrate regulatory compliance.
8. Who uses supplier rebate management software?
Distributors and resellers, buying groups—any organization which has multiple supplier rebate programs they need to track, claim against and report on.
9. What’s our first step to better supplier rebate management?
We’d recommend chatting to our experts about the supplier rebate challenges you’re currently facing in your own organization. They’ll be able to explain where and how the right rebate management solution could help.
If you’re ready to see exactly what the latest rebate management software can do, we’d love to show you.