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.
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
Strengthen relationships - Supplier rebate agreements encourage joint business planning, and long-term, mutually successful partnerships
A vendor rebate program can take many different forms:
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.
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.
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.
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.
Distributors and resellers, buying groups—any organization which has multiple supplier rebate programs they need to track, claim against and report on.
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.Talk to our expertsIf you’re ready to see exactly what the latest rebate management software can do, we’d love to show you.