7 common challenges when managing complex rebate deals

7 common challenges when managing complex rebate deals

Rebate management is critical to companies that rely on their rebate deals to improve their margins. For some it’s a bonus, for other companies it’s a significant proportion of their profit. But reaping the benefits from complex rebate deals that involve retrospective payments (such as rebates, retrospective discounts, purchase income and other forms of back margin) and maximizing their potential during initial negotiations and the lifetime of the contract is far from simple. The large number and complexity of rebate deal types, the variety of scenarios from different vendors, missing data, changing trading agreements, and tight margins, make managing these types of complex rebate deals particularly challenging.

The 7 common challenges with complex rebate deals:

1.   Product and unit of measure complexities

Trading agreements are negotiated around multiple complex dimensions that can be unique to each supplier, product and customer and based on units of measure from square metres and tonnes, to bags and barrels. The sheer number of permutations means that spreadsheets and basic financial accounting systems largely fail to manage the complexities of rebate deals.

2.    Access to accurate rebate data

Purchasing teams can’t negotiate their rebate deals without accurate, timely and relevant information. As simple as that sounds, it’s a surprisingly common oversight. Purchasing are expected to have all the data they need to negotiate with, but this becomes a problem when the information is logged on multiple, disparate spreadsheets and printed documents. This is a major problem, especially for companies with multiple brands and site locations.

3.   Avoid dispute and enhance supplier relationships

Disputes with suppliers over rebate payments due not only damage supplier relationships but also hit the bottom line through, at best, the delay of payment or at worst, not receiving the value anticipated.  If disputes are to be avoided, then rebate deals need to be clear and unambiguous. Rebate deal calculations must be readily available to both parties, and most importantly, much match up.

4.   Failure to collect the full rebate earnings

Trade agreements can be in place for considerable periods of time. Data needs to be clear, concise, and accurate all the way through the rebate deal lifecycle, which can be a huge challenge. Without data accuracy and clarity, it’s highly likely that the full value of your rebate deal earnings will not be received, affecting cash flow and profitability.

5. Understanding the rebate deal

When rebate deals are so complex, it can be difficult for all the teams involved in managing them to understand them fully and extract the full value from them especially if reliant on manual tools like spreadsheets. For example, if the commercial team can't understand the deal, finance teams can be left guessing and are unable to accrue the correct amount or match payments to the deals.

6. Confidence in your rebate accruals

A rebate accrual is the amount of rebate that has been earnt, but not yet received (or for customer rebates, the amount that is owed but not yet paid). With rebate deals, it is common to earn rebates at a different rate to which you receive them so the money needs to be spread across the year. For example, you may earn a quarterly rebate based on overall spend with a given supplier, but that supplier might only pay that rebate at the end of the year. From a rebate accounting perspective, this rebate income needs to be represented, or ‘accrued’ for, at the time the rebate is earnt, not the time it is received. There can be serious consequences if rebate accruals are incorrect, and profits are over or under-stated which could happen if rebate deals are so complex and handled in spreadsheets. Estimating the accrual value, is also difficult without extensive reporting and forecasting functionality leading to incorrect estimates of value.

7. Visibility of how the deal performed

If your commercial team haven’t got clear visibility into your rebate deals, you could be missing out on massive opportunities. They need to be able to confidently set up rebate deals and agreements, negotiate the terms involved, collaborate with the different teams and track the performance of the rebate deals. This isn't always easy when they are so complex and your relying on disparate systems or spreadsheets.

How can a rebate management system help you overcome these challenges with your complex rebate deals?

To get more out of your retrospective trade agreements it’s necessary to consider how manual and inefficient processes can be replaced with a robust rebate management system, which handles the complexities and intricacies of each deal entirely, providing the opportunity to fully realize rebate income. A cloud-based rebate management system can be implemented to provide a single access point across departments. Commercial teams can log on to the system to model their deals and finance teams can see the impact on the accounts. This centralized system for your rebate deals can also provide insight into group purchasing and help to rationalize buying. For additional insight into improving your rebate management processes and maximizing your rebate deals and the options available to your business, download our eBook:  How to manage complex rebate contracts effectively.

Andrew Butt

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