Rebate accounting: 3 ways to improve efficiency
It's a complex task managing multiple vendor rebate deals across multiple vendors, multiple product lines, and in some cases multiple units of measure. 2 for 1, multi-pack discounts, retrospective discounts, limited lifetime promotions, not to mention awards points and prizes make rebate accounting a very complex job. By way of illustration, we have worked on one rebate example where there were 300 deals written into 1 vendor contract. Without the right tools and information rebate accountants can struggle to deliver on the promise of these commercial deals and realise the commercial benefits that were intended. With so much of the work still being carried out using spreadsheets or through ERP systems that do not have the specific functionality needed to deal with complex vendor rebates, here are 3 things that can help hard pressed rebate accounting teams:
- Templated deal types — there are many variations of deals, but that does not mean that you have to ‘re-invent the wheel’ each time. Having a set of template deal types will save time and ensure consistency. Give procurement scope to negotiate but only within the templates that you know you can manage.
- Visibility of deals and transactions — consolidate all rebate deals and associated purchasing transactions into a single system that is visible to both finance and procurement teams. This will enable rebate accountants to see what earnings are due for each deal, by supplier, and product line, buyers to see the next potential break point for improved rebate earnings, and procurement to negotiate based on accurate information about past and predicted future purchases.
- Internal approval and supplier signoff processes — by implementing a rebate system that automates the internal and supplier signoff of deals (with version control and audit trails), the complete process will be much more efficient and will increase the productivity of rebate accountants and procurement, and supplier teams.
That's easy to say, but how do you put the above into practice? There are 3 basic options for systematising rebate accounting:
- In house developed solutions — Some companies believe their rebate accounting challenges are unique (but in fact, they are not) and therefore can only be solved by an in-house developed solution. The cost and speed of developing a solution, maintenance, updates and integrating it with other systems used within the business is very often prohibitive, even for companies that rely on rebates for a majority of their profit.
- Use a ‘module’ from systems such as SAP — Rebate accounting is not core functionality for most ERP systems, and as such they have the capability to manage simple rebate agreements such as deals earning rebate amounts that are either fixed or a percentage of total spend. ERP could be a viable option if your needs are simple. However, for many wholesalers, distributors, merchants, buying groups and retailers who negotiate complex agreements, most ERP vendor rebate management systems work only with a fairly high level of compromise on the types of deal that can be mapped into the software.
- Use a dedicated Rebate Management Solution — Enable has been developed specifically for companies that have complex vendor rebate deals, and want to improve cash flow, improve rebate earnings and operate rebate accounting processes that are fully aligned with corporate governance. Enable’s proven functionality includes over 90 different deal types, automated workflows, supplier collaboration and reporting.
Driving better rebate deals and managing those effectively can have a significant impact on company value, and an automated rebate management system can help rebate accountants and procurement teams be more efficient and effective. In the video below, we discuss the issues that companies face when dealing with complex vendor rebates.