What is Rebate Management? Top Tips for Finance

Rebates are a commonly used incentive to drive sales. While they are often successful in doing so, they can cause a headache when it comes to accounting for them. To overcome the potential chaos of tracking rebates, you can use a rebate management system to make it easy for your team and organisation.

We’re going to share the top tips for finance when it comes to dealing with rebates.

Coming Up

1. What is a Rebate?

2. Why Use Rebates?

3. What are the Types of Rebates?

4. What is an Example of a Rebate?

5. What is Rebate Management?

6. What are the Challenges of Rebates?

7. What are the Benefits of a Rebate Management System?

8. Rebate Management Made Easy

What is a Rebate?

A rebate is a financial payment term that’s used to incentivize sales. It is basically a delayed discount.

When looking at a rebate vs. discount, the main difference is that a rebate happens after the sale occurs, whereas a discount is applied at the point of sale.

For rebates, a buyer makes a purchase, and after the purchase has occurred, the seller provides a rebate, which is money back.

Several different types of business lines rely on rebates to help with sales. These include suppliers of electronics, wholesale distributors, suppliers of raw materials, retailers, and more.

Why Use Rebates?

Rebates are an effective way to increase sales and drive customer loyalty. This is the case as you can set up rebates such that increased spending correlates to increased rebate amounts.

Rebates are also a desired alternative to discounts because if many businesses within an industry constantly provide discounts, it will lead to eroding margins. But, with rebates, customers can still take advantage of lower prices without the discounted cost affecting the purchase price of the item.

Additionally, continuous discounting can end up negatively impacting a company’s brand image. Rebates don’t have this same effect because the price tag isn’t impacted by a rebate.

Lastly, companies use rebates to protect themselves with changing order volumes. To exemplify, discounts may only make sense for a company when they reach a certain scale (order quantity). But, if that order quantity isn’t hit, then the discount will harm the margins.

Since rebates are provided after the purchase has been made, it is easier to assess whether or not offering the rebate will be viable to continue or not, based on customer demand.

What are the Types of Rebates?

There are two main types of rebates. These include:

1. Customer Rebates:

Manufacturers and merchants often deal with customer rebates. Rebates are then paid out to customers or buyers. If you’re on the selling side of an agreement and accounts payable is involved, then you’ll be working with customer rebates.

2. Vendor Rebates:

Vendor rebates typically exist for merchants and distributors. Rebates are offered by suppliers in this case. If accounts receivable is involved and you’re a purchaser of a rebate agreement, then you’ll come across vendor rebates.

What is an Example of a Rebate?

To make the idea of a rebate crystal clear, let’s look at an example.

An electronics retailer is selling refrigerators. The cost of the refrigerator is $1,000. There is a current mail-in rebate for $200. So, the buyer will purchase the refrigerator at $1,000, and then get $200 back, essentially making the cost of the refrigerator $800. This is an example of a fixed monetary rebate.

Rebates aren’t always so straightforward, however. They can consist of a tiered growth-based rebate that depends on the target turnover and earning turnover. With the different varieties of rebates, it’s easy to see how a rebate tracker will be needed in managing rebates.

Manual finance functions are turning into a thing of the past. Let’s see how rebate management and automation solutions make the process seamless.  

What is Rebate Management?

Rebate management is the all-encompassing process of rebates, from the creation and structure to enrolling customers, forecasting profitability, and analysing the program’s effectiveness.

For some companies, the rebate management process takes place manually and across spreadsheets. We’ll soon touch on what challenges are likely to occur with rebate management and better understand why manually doing so can be the cause of problems.

Within rebate management sits the need to track each purchase or sale against the trade agreement (which defines the rebate). An accrual is made and then it must be either claimed or paid.

What are the Challenges of Rebates?

Although rebates are a great sales tool, they can become an accounting hassle, if they aren’t managed properly.

Some common challenges that arise with rebate include:

1. Responsible parties:

If an organisation has multiple rebate programs running at one time, then it could create internal chaos if each person isn’t aware of what sits under their task list. Think about this: say one sales manager sets up a specific rebate program for a single region, but another one doesn’t. This can become confusing for anyone dealing with the back-office tasks.

2. Delayed payments:

Customers and vendors alike expect to receive rebates in a timely manner, as promised when they made the purchase. When there are multiple departments involved and slow approval processes, you run the risk of customer dissatisfaction and even churn.

3. Inaccurate or missing data:

If sales teams are tracking their sales and rebates manually and on disparate spreadsheets, it will certainly be difficult for everyone to stay on the same page. This is especially an issue for an accounting team who has to manage the accounts payable and accounts receivable.

What are the Benefits of a Rebate Management System?

The use of technology and automation solutions has helped to usher in a new era of finance. And, when it comes to rebate management, these solutions pack a powerful punch.

A rebate management system will collect information from a variety of business systems, model and monitor deal flows, and automate rebate information for sales, purchasing, and finance teams. They serve as a place for stakeholders and department managers alike to always be on top of what’s happening within the organisation.

The tools are equipped with a rebate tracker and rebate calculator that takes all the heavy lifting out of the accounting functions (and, sales teams can benefit, too).

Rebate management systems help by:

1. Increasing Revenue Opportunities

With a rebate management system in play, you can easily pull reports to analyse the outcome of your rebate programs. This becomes a business intelligence tool that can help to inform how to optimise rebate programs to increase revenue opportunities..

2. Streamlining Administrative Processes

A rebate management system makes the entire rebate management process transparent. Negotiation, approval, administrative processing, payment timing, costs, and the like are all carried out within the system. This means that any party who is granted access control inside the system can check in to see the status of a rebate.

3. Enhancing Client Relations

When you promise a customer a rebate, they are counting on your word at the point of sale. They may have chosen to purchase from you because the rebate made an item affordable. However, if you delay their rebate payment, it can lead to dissatisfied customers.

With a rebate management system, the process runs smoothly and doesn’t hit any snags, which means that customers can expect to receive their payments on time and be satisfied with your level of service.

4. Increasing Order Volume

Rather than having to spend time focusing on the back office tasks and rebate tracker aspect of offering rebates, your team can spend time utilising and creating incentive agreements. With the aid of the system, you’ll gain clarity and understand the ROI of specific rebate programs.

This way, you can leverage forecasts, targets, and earnings to make smart business decisions in relation to rebate programs. Ultimately, these decisions can lead to increased order volumes, thereby boosting your bottom line.

Rebate Management Made Easy

Many companies understand the value of using rebates to incentivize sales. Those who utilise rebate management systems and automation solutions make it an easier process all around and can gain insights from analytics to devise optimal rebate programs.

These automation software solutions help to improve accuracy and improve business performance. From simple to complex rebate scenarios, you are able to reduce errors and streamline functions by deploying a rebate management software solution within your organisation.

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