Rethinking your rebate management strategy
We may have survived the pandemic, but what lessons can be learnt to rethink our rebate management strategies going forward? To find out, Zoe Cooke, Senior Account Executive at Enable spoke with Tim Foster, Partner of Risk Advisory Services at BDO.
Relatively early in the pandemic, BDO created a rethink framework – which they were able to apply to rebate management, too. Tim says it got all different parts of the firm thinking together but, more importantly, they were able to apply it to their clients’ businesses, too: To help them safeguard their organizations by reacting in the best possible way to a particular situation.
But, while the framework was particularly helpful in the early days, they soon realized that although it’s important to embed resilience and keep the business running during a crisis and heading into a future state, there is also a very important transition period between the time of resilience, and how this becomes reality. By applying their framework for re-evaluating the future, Tim says,
“…We can maximize our people, our processes, the way that we apply technology in order to improve revenue streams. [That will] help us to be more resilient, more robust, and think differently about what the new world will look like. And how we adapt to that.”
Supply chains and rebates rely on people
Tim understands the depth of complexity involved in the supply chain and rebate management. “There's the financial aspect, the legal and compliance element, the global platforms, how we are engaging with our supplier base, the leadership and ethics around supply chain, and how we operate internationally or even nationally.” This is on top of bribery and corruption issues and the other parties involved: Customers and employees.
How does one manage this incredibly complex environment efficiently? Tim believes that maintaining processes and operations with a shrinking resource pool requires the right infrastructure and technology to support organizations. He explains that it’s important to consider “how we better utilize our resources, our people. [It’s about] making their employment much more interesting, and how we engage with our suppliers using technology.”
Within this context, rebate management is critical.
Rebates as an additional source of revenue
“Why are we looking at pinpointing rebates as an additional, approved source of revenue?” asks Tim. Within the ongoing supply chain issues – from semiconductor to precious metal and other resource shortages, political challenges, resource capacity issues, rising costs, changing working practices, and employee pay increase expectations, some organizations have managed to adapt. Which ones? Those who have had much more solid technology platforms, says Tim.
He notes that finance and procurement teams have been forced to reevaluate their revenue streams. The vast majority of his clients have been looking to make their revenue streams either more effective and efficient or consider revenue streams that they may not have tapped into before.
He also notes that the issue of rebates cannot be considered without recognizing the issue of compliance risks and audit mistakes, which also relates to how effectively rebates are being managed, and how they're being reported and factored into revenue recognition.
He believes we need to rethink revenue creatively and strategically, optimize all revenue streams, minimize compliance risks and improve decision-making.
Appropriate rebate management software can help with all of these elements.
Stop seeing rebates as an afterthought
The majority of rebate management is labor-intensive and spreadsheet-based, says Tim, but changing the way rebates are managed allows companies to manage suppliers more effectively and make better decisions based on real data and improve revenue. As Tim explains, “rebates might not be right up there in terms of the level of revenue as a standalone item, but when it's all built up it can actually constitute quite a large number.”
Not only are rebates a way to encourage loyalty, which helps incentivize trading, but using rebates effectively can help return a healthy ROI, enable strategic procurement management, improve supplier engagements, reduce inefficient processes and maximize rebates as a revenue stream.
Tim points out that one of the most important factors in how rebates are being managed is also the ability to get into the data underpinning them. “One of the biggest reasons why companies approach us (BDO) is because auditors have pulled them up on something”, explains Tim. This surprises him a lot because 20 years ago he says people were having debates about organizations having far too many spreadsheets in place and, yet, nothing much seems to have changed.
WATCH THE WEBINAR TO SEE WHAT THEIR AUDIT TECHNOLOGY REVEALED ABOUT HOW MANY SPREADSHEETS WERE BEING USED IN ONE ORGANIZATION – IT’S TRULY SHOCKING
Consequences of poor rebate management
Tim notes that poor rebate management processes can result in poor, or no visibility of rebates with suppliers, leading to disagreements. There’s also the risk of errors and inconsistencies in rebate calculations leading to either underpayment or overpayment – both of which can have negative consequences. The over- or under-statement of rebates and the true cost of sales within financial accounts and statements is also a huge risk, particularly as far as revenue is concerned. When rebates are not managed well, processes are inefficient, man hours are wasted, and there is a risk that unethical behavior and incorrect bonus calculations may result, as well as the risk of people manipulating promotional allowances which is, in effect, revenue recognition fraud.
There has to be a smarter way to manage rebates
“As a governance, risk and control expert and head of a group of 250 experts in this field, we always start with assessing the design of the process”, Tim explains. HBO looks to see if they have all the right people engaged, the information is flowing through, the right controls are in place and the right decisions are made at the right point. But he also acknowledges that it’s important to make sure staff are aware of the benefits of rebate management.
Tim says that it’s important to have a clear process in decision-making and signoff. A slicker or more agile contract management process helps here. This also aids effective contract management, supplier engagement, and analysis. Great rebate management tools also allow effective modeling and forecasting, which can enable the creation of mutually-beneficial rebate schemes.
Effective rebate management can significantly change an organization’s financial position. Tim tells a story of how HBO helped a company gain an extra £6 million a year by improving rebate levels by 1%. While not all companies can achieve that, he says that a rebate management tool that allows rebates, monitoring, checkpoints, and data rollback with audit trails can make a significant difference to an organizations revenue, while also reducing audit risks.
WATCH THE WEBINAR RECORDING TO HEAR HOW HBO HELPED A COMPANY GAIN AN EXTRA £6 MILLION A YEAR BY IMPROVING REBATE LEVELS BY 1%
Now is the time to invest in strategic rebate management
“We’ve got limited resources out there,” says Tim. “Actually, now is the time to invest in our people and make sure that they're given the support they need, the tools that they need, and, in particular, the training.” But none of this is possible unless you’re proactive. He concludes by saying, “Have a think about rebates. What does it mean to you as an organization? And is there something that you can do? And if there is, crack on with it and, and start looking at it.”