The Deal Economy - Enable

Customer rebate programs are great in that they drive the selling behavior of resellers and distributors on more than ten trillion dollars in North America and Europe alone. The large volume of money attributed to customer rebate programs is hardly surprising since they include everything from simple vendor rebates to marketing development funds (MDFs), vendor co-op funds and special pricing agreements (SPAs). However, rebate accounting is complicated, and managing vendor rebate programs can be...

For any business to be successful, it’s vital that a profit is made enabling continued success and to provide opportunities for growth and development. But, making a profit isn’t always as easy as it may seem. Once all the necessary expenses and costs have been paid out, its then essential enough sales have been made just to break even, let alone have anything extra to realise a company’s ambitions.

Although this can be extremely challenging at times, it’s also possible to increase the profitability of your business by spotting opportunities. Collecting rebate agreements on time, consistently and accurately could be one of these opportunities. Rebate management is the process of recording supplier agreements, tracking purchases and sales against those agreements, and managing accruals and rebate claims in a timely manner. Traditional methods of rebate management can eventually lead to missed rebates and poor accrual accounting.

A few years ago news about Excel miscalculations at JP Morgan rocked spreadsheet users’ worlds. A simple cut and paste error cost JP Morgan $6 billion and resulted in dramatic headlines like “Why Excel is the Most Dangerous Software in the World”, but it wasn’t the first time spreadsheets had caused massive business disruption, nor will it be the last. A similar cut and paste error had previously cost TransAlta $24 million and another Excel mishap – hiding cells instead of deleting them – cost B...

Whatever industry you are involved in, forecasting the potential earnings for your business is essential in preparing for the ups and downs of the year ahead. But how do you make decisions about your budget, such as how many employees you can afford to hire or how much you can spend on marketing if you don’t know how much revenue and profit you’ll be generating?

Accurate forecasting and accurate accruals are vital to success within your business to ensure that you are aware of what the future is likely to hold so that you can appropriately allocate resources to assist in key areas. For many businesses, forecasting is not a focus and even for those that make a point to forecast their future, various challenges can limit the accuracy and benefit of these forecasts.

With this in mind, let’s dive in to the four common challenges of forecasting rebates.

Rebate forecasting challenges

1. Many in-house forecasts are too basic.
2. Renegotiating the best deals in the future.
3. Forecasting is too manual.
4. Forecasts are not updated throughout the deal.

Challenge #1: Many in-house forecasts are too basic

Often, in-house systems forecast earnings or payments by a simple linear extrapolation based on qualifying spend for a particular deal to date until the end of the deal.

Supplier rebate agreements are often based on the volume of purchases of particular products. This means that in order to accurately calculate the rebate that should be accrued or collected, and to minimise the chance of disputes with suppliers it is crucial that your rebate calculations are based on accurate data.

When choosing which data to use for your supplier rebate calculation, you will likely be considering the three following options. Unsurprisingly, each of these choices have advantages and disadvantages to consider depending on your internal systems, business processes and priorities.

Let’s dive in and take a look at the pros and cons.

Safety in numbers is the well-known hypothesis that, by being part of a large group, an individual can reduce their risks and is, therefore, more likely to succeed. In the same way, buying groups typically form to provide smaller independent companies greater buying power by consolidating their purchases. While this structure can be hugely beneficial, we’ve found that it usually adds complexity to the process of managing retrospective rebates.

Due to the number of members changing and volatility of small business, there can be a great variance in the purchase volume from time to time. This means that the buying group as a whole can often struggle to commit to consistent large purchasing volumes which reduces buying group negotiating power and will lead to suppliers offering lower discounts.

Rebates often enter the conversation as a mutually beneficial method, offering tiered discounts based on actual purchases. Whilst rebates are the best solution for this problem in the eyes of the buying group, supplier and buying group members, they create new challenges for all involved. This can lead to large amounts of time and energy — that could be better utilised elsewhere — being unnecessarily wasted.

Let’s dive in to the 5 rebate challenges that are faced by both buying groups and their members:

With ever-more complex special pricing agreements being created in an already vast and competitive market, the ability to efficiently maintain pricing flexibility between manufacturers and distributors has become essential.

Both supplier and customer rebate have been prominent for many years. Their aim is incentivising purchases and sales and protecting profit margins. A focus on rebate management has helped merchants, buying groups, wholesale distributors and retailers to drive mutually profitable growth with suppliers whilst improving cash flow and reducing risk.

US-based research has shown that alongside rebate agreements, manufacturers and distributors are increasingly collaborating around ‘special pricing agreements’, commonly abbreviated to SPAs, and often referred to as ‘contract support’ in the UK building materials sector.

By necessity, SPAs are collaborative arrangements whereby manufacturers and distributors assist each other for mutual benefit. Initially these types of agreements entered the market to leverage scale, but they have since evolved into a more widespread tool used to grow sales and market share by allowing trading partners to work together in offering a more competitive price than their rivals.

Ah yes, rebate claims. An evil necessary in the land of SPAs (special price agreements). While they’re inherently necessary to realize intended profit on the sales transaction, they’re a pain in our side when it comes to handling the issues that plague the reconciliation process. But the process of reconciling product rebate claims is full of information that is largely dismissed, not getting any attention to the voice that tells us the very issues we continue to tolerate rather than fix. Let’s...

We learn about collaboration from an early age. As children we quickly learn that we need to collaborate with teachers, classmates and team players in order to be successful. "There's no 'i' in 'team' is a common mantra in sports and work teams. And "supply chain collaboration" has been a hot topic for decades. Despite that, there are very few systems that enable wholesale distribution companies and their suppliers in the building materials sector to truly collaborate on their trade agreements....

SPAs (Special Pricing Agreements) are a common vendor program in many industry sectors. The program gives a special product discount for verified sales to an ultra-competitive event where in-stock discounts can’t secure the order. SPAs trace their roots back to the 1970’s but have shown significant growth in the past decade. As B2B e-commerce now counts for an estimated 15% of all orders and grows at 8% per year, SPAs have grown significantly as price and availability are easily and quickly rese...

The phrase win-win is probably over-used, but I am going to use it anyway to describe the situation where both parties come out of a negotiation feeling like they have won. Let’s be honest. If you think you won and the other party (your supplier or your customer) feels they lost, then it’s not really a good situation. Price is important, but (particularly in industries like building materials distributors and grocery retailers where margins are tight) time to market, supply chain reliability, in...

Vendor monies that support reseller sales are big business. US-based research conducted in October 2018 estimates that, at top performance levels, distributors, dealers, and retailers use $600+ Billion (USD) in vendor funds. Projections from the EU find that approximately €500 Billion (EU) in vendor funds are similarly spent. These funds are found as four primary types including: SPAs - Special Pricing Allowances used by sales to compete with a competitor’s special pricing to a customer MDF - M...

SIG is a leading European provider of specialist building materials, with close to £3bn of annual revenues and around 9,000 employees across the UK, Ireland and Mainland Europe. As a specialist distributor, SIG plays a critical role in the construction supply chain, bringing value to its customer base across major European markets. SIG enjoys strong partnerships with many of the world’s leading producers of building materials. It has purchasing arrangements with many suppliers, which include a...

Rebates, SPAs, claim-backs, contract support are all very similar and at the same time quite different to each other. In essence they are all terms for the money that wholesalers claim from suppliers and manufacturers for selling their products. Some of the key differences lie in how the agreements are formed, whether goods are actually ever handled by the wholesaler, and how the claims are made. Collectively, they are sometimes referred to as “vendor monies”. It is estimated that, annually, the...

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. For many, that lack of functionality has resulted in missed rebates and poor accrual accounting. But worse than that, if your business systems don’t support rebate management fully, then the whole purpose behind creating dea...