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5 key steps to manage rebates effectively and improve margins

Posted by Andrew Butt on 01/08/17 14:36

Rebate Management refers to the management of discount claims that are based on volumes of purchases over time.

To some companies, that rebate is treated as a bonus. But to others, rebates form a significant proportion of their revenue and for these companies accurate management is absolutely essential.

The management and processing of rebates is challenging, with significant financial risks if something goes wrong due to loss of data or human error.

Many rebate arrangements lack support in financial accounting systems, such as targeted incentives and multistrand rebates. Keeping a track of rebates when purchasing is decentralised or where the trading agreement is made by a buying group creates further challenges.

So what can purchasers do about these challenges in order to maintain an effective management process?

How to manage complex rebate contracts effectively

You could work it all out in spreadsheets, relying on individuals to collate and input data manually. This process works in theory but it's easy to see how it could be subject to errors or omissions.

IT'S EASY TO SEE HOW SPREADSHEETS COULD BE SUBJECT TO ERRORS OR OMISSIONS

Alternatively, some companies rely on their suppliers to perform all the relevant calculations for them, without ensuring it all checks out.

Neither method is optimal, as they both create a wealth of issues if things go wrong—slow cashflow, loss of income, disagreements with suppliers, incorrect margin calculations—the list goes on!

In order to manage rebates successfully, and reap the financial rewards they can bring to your organisation, there are 5 steps you must take towards implementing an efficient and effective process.

Ensure mutual understanding with suppliers—prior negotiation of viable rebate terms with suppliers reduces any risk of disagreement between purchasers and suppliers with regards to the contract. Both parties should have access to the relevant data and calculations and be clear on rebate terms in advance.

  1. Maintain compliance—a transparent audit trail will make sure that all relevant information is recorded, allowing easier monitoring and auditing to take place. A rebate management system should provide a compliant process to eliminate the time and cost involved in providing evidence for rebate claims.

  2. Reduce uncertainty—ambiguously worded agreements, unclear procedures and over-reliance on individuals all provide room for error which could create cost and risk in your business.  Systemise the content of agreements to remove any ambiguity.

  3. Keep track of earnings and incentives—the ability to accurately calculate and track rebate earnings and forecasts is fundamental to reliable rebate accruals and maximising the incentives built into rebate agreements.

  4. Streamline processes—automating the collection of information about deals and purchases and the reporting of rebate claims minimises the need for manual intervention, reduces error and improves cash flow.

A dedicated rebate management system will make it easy to track complex supplier agreements and ensure that all of the rebates negotiated in the terms of your agreement are captured and claimed.

For more information about managing rebates, download our guide “How to manage complex rebate contracts effectively.”

Topics: Rebate Management