What is Rebate Management? Rebate Management Explained

What is Rebate Management? Rebate Management Explained

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.

Proper rebate management can be a headache for any business, regardless of the scale of their rebate programs. Often, whole teams are dedicated to using legacy systems to follow inefficient processes, reducing productivity and negating the intended benefit of the rebate agreements commercial teams have negotiated brilliant terms for.

For small to medium businesses, rebates can make up the majority of their profit; for large businesses, even a small improvement in process can lead to the discovery of millions of dollars in revenue. Therefore, it's essential for any company who are regularly involved in rebates to scrutinize their current rebate management process and consistently strive to improve.

Before we dive into more detail on the topic of rebate management, let's look at some of the basics concerning rebates: what are they exactly, and why do companies rely on them?

What is a Rebate?

A rebate is a retrospective financial payment used as an incentive to drive sales growth without simply reducing the quoted price by offering a discount. It is a payment from a seller to a buyer after the buyer has purchased specified goods at an agreed combination of locations, quantities or values from the seller. It’s important to remember that rebates fundamentally differ from discounts: while discounts reduce the price before the purchase, rebates are only paid out after the sale.

Rebates are essential to operations in various industries including building supplies, electronics, retail and wholesale distribution. They can be offered to certain locations, on certain types of transactions and on certain products or product groups. Rebates can get complicated, but these intricate deals are nevertheless vital to the success of many businesses and industries.

What is the Purpose of a Rebate?

Rebates are a way of encouraging loyalty over a period of time, which helps to incentivize trading with one specific trading partner over others. These types of rebate agreements are typically “tiered,” where increased spending leads to increased rebate rates.

Rebates are used because offering a discounted invoice price will often lead to the discount being passed on to the customer, causing eroded margins in the industry. They are also used in certain industries to avoid offering a cheaper listed price out of fear of diluting a company's brand.

Rebates help with loyalty and protection

Finally, rebates are a way for the company offering the discount to protect themselves against changed order volumes, as the economies of scale that initially drove the offered discount may mean that the discount is no longer viable at a different order quantity. For example, a cheaper price per product may be more viable if a company buys 10,000 items than if the company only bought 10, so rebates are a good way to ensure the cheaper price is only given to the customer after they have made the purchase, rather than giving the discount upfront as a reduced purchase price.

Now that we know a bit about rebates and how they work, let's look at the parties involved in managing rebates. Rebates are essentially viewed from two perspectives: supplier rebates (also known as vendor rebates) and customer rebates, where the perspective on the rebate agreement is different between the two.

What are Vendor Rebates?

Supplier rebates are most common for merchants and distributors. These are rebate agreements where rebate payments are received from a supplier. You will deal in these types of agreements if you are on the purchasing side of a particular rebate agreement.

What are Customer Rebates?

Customer rebates are most common for manufacturers and merchants. These are rebate agreements where rebate payments are paid to a buyer or customer. You will deal in these types of agreements if you are on the selling side of a particular rebate agreement.

What is an Example of a Rebate?

There are many different types of rebates depending on the trading partners involved and the industry that they operate in. The simplest example of a rebate would be a fixed monetary amount that is guaranteed to be paid at the end of the agreement.

Another common example are deals where rebate earnings are a fixed percentage of turnover. The terms of an agreement will outline which turnover is eligible for this agreement, perhaps specifying a combination of certain branches or divisions, certain types of transaction and certain products or product groups.

A more complex example of a rebate is a “strung” and tiered growth-based rebate, where the target turnover differs from the earning turnover. This means that the rebate earnings due to be paid are calculated via various incremental targets based on a growth rate on top of last year's turnover, where the turnover that is eligible for the rebate doesn't include turnover eligible in other deals. Further to this, the turnover used to determine the target rates can be different from the turnover used to determine the earnings.

Many more flavors of rebates exist, far too many to run through them all – but you can certainly see how these deals can get complicated and why it is so important to have a comprehensive rebate management system in place.

Why Do Rebates Take So Long to Claim?

There are several reasons that rebates can take a long time to claim. The main obstacles causing delayed payments and a slower cash flow for your business are disputes over what was agreed or how to calculate, manual processes made worse by disparate systems and high levels of dependency on a single person. Time can be wasted in the rebate claims process when both parties lack visibility of the agreement and have to engage other team members to confirm what was agreed.

If calculation processes are manual and data is spread over many systems, time is also lost in simple administration – even more so if the calculations are inaccurate.

Naturally, many of these obstacles can be overcome if you have an automated system backed up by streamlined processes. This can lead to stronger relationships and more effective collaboration with your trading partners.

What Are the Benefits of Using a Rebate Management System?

Over the years, our clients have found many benefits in using a rebate management software over managing their rebates manually:

  1. Automated processes are simplified and more efficient
  2. Minimal disputes and faster conflict resolution with accurate audit trails
  3. Improved cash flow due to timely and accurate rebate claims
  4. Improved margin due to more accurate rebate and pricing calculations
  5. Automating processes frees up finance and commercial teams to increase productivity in other areas
  6. Better supplier collaboration leading to improved profitability and growth

If a business’s profit margin includes a substantial amount of rebate claims, they can gain significant ROI with rebate management services. From increased time for employees to identifying better commercial opportunities and boosting sales, a centralized rebate management system can bring a wide range of benefits to your business.

A rebate management system allows you to streamline and automate every element of a rebate deal, including:

  1. The ability to record any type of pricing agreement (e.g. ship and debit, retrospective tiered discounts, strung rebates, special pricing agreements, growth-based rebates and more)
  2. Automated tracking of purchases and sales against agreements
  3. Automated accruals recording
  4. Automatic invoicing/supplier debits
  5. Extensive and granular reports
  6. Forecasting that accounts for seasonality and specialist industry knowledge
  7. Commercial modelling to better assist negotiations
  8. A reliable and extensive audit trail
  9. Internal approval workflow with an integrated external trading partner sign-off

Fast-Track Your Rebate Management

Rebate management should be a key focus of everyone involved in rebates, regardless of the industry that they operate in or their role in the agreement. Systems that manage supplier and customer rebates should include a comprehensive suite of features to provide businesses with the tools they need to make the most of their rebate deals.

It's important to remember that the benefit of rebate management extends far beyond simply having an automated calculator – it’s about improving efficiency and your processes as a whole, freeing up teams to work on what they do best.

It can be easy to neglect rebates and operate under the assumption that your current process is handling the situation, but all too often, companies are finding out that this assumption is incorrect after the damage is done. Schedule a demo with Enable to see how our comprehensive automated platform can support your rebate management needs.

David Hunt

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