As experts in rebate management, we have come across (and fixed) many problems with rebate management processes. Here are the 7 most common things that businesses need to fix in order to improve profitability and growth.
1. Problems capturing rebate agreements in core business systems
Companies tend to look for a specialist solution to rebate management when they reach a point where their core business systems are proven to be inadequate. We have seen several scenarios:
- Businesses where, perhaps as a result of a merger and/or acquisition, there are a few different ERP systems in operation and, as a result, cannot model and report on rebate agreements that span all parts of the business.
- Businesses running a single ERP system that doesn’t have the flexibility to be able to model all rebate agreements perfectly.
- Buying groups that need to consolidate information from all members (all using different systems) in order to negotiate better agreements.
- Companies that resort to spreadsheets to manage rebate income find problems with modelling deals, consolidating purchasing information and/or determining rebate claims.
2. Realising rebate income is being missed / relying on suppliers to inform what rebate is owed
Clearly nobody wants to lose income, and, where rebate income is a significant proportion of profit margin, the imperative to get it right is even greater.
It's inevitable that things will get missed unless you have a complete end-to-end solution from negotiating deals to receiving cash. Yet many businesses don't have that kind of system in place. They have a system for storing information on deals, and a financial system for receiving payments, but the calculations in the middle may be quite disconnected from the others.
The result is that many businesses we speak to don't actually know whether they are missing rebate income, and some go so far as to rely on their suppliers to tell them what income is due.
3. Inaccurate margin calculations
Following on from the last point, if all the pieces of the process are disconnected, it follows that matching cash received back to deals can be problematic.
Yet that piece of the process is the very thing that determines the degree to which the original negotiation was successful in keeping margins as high as possible.
4. Inaccurate accrual reporting
If your “rebate in stock” figure is difficult to calculate and accruals are hard to determine, that’s another sure sign that a rebate management system is required to keep financial controllers and auditors satisfied.
Indeed, forward-thinking auditors are advising their clients that they should have a robust process for monitoring and accounting rebates in line with the demands of IFRS 15.
5. Lack of information for negotiating future deals
In our blog about preparing for “smart deals” we discussed the importance of being fully prepared when going into a negotiation. If your systems don’t enable you to retrieve a complete picture of purchase history and margins by supplier / product / branch then it’s difficult to model future demand and therefore be adequately prepared for contract negotiations.
6. Lost opportunity for driving margin growth, profitability and market share
Whilst missed rebate income is bad enough, of increasing concern is the lost opportunity for driving growth in margin and market share. Rebates were, after all, invented as a way of driving growth for both the supplier and the distributor, but they are only effective when the end users, sales and purchasing have access to accurate, up-to-date information.
7. Lack of a completely transparent and auditable profit reporting process
This last one is becoming more and more important as IFRS 15 is driving auditors to look even more closely at the processes behind rebate accrual calculations and therefore profit reporting.
If you recognise any of the above problems, take a look at our buyers guide to choosing a rebate management software. This document examines the problems and the alternative solutions and provides a checklist for selecting the right solution for your business.