Rebate Calculations and Reconciliations
Large wholesale and retail organizations have between several hundred and several thousand suppliers and service providers. Many of their suppliers will offer sales or purchase based rebates as incentives for purchasing their products or services. The monies received from supplier rebates can make up a significant portion of net profits in many industries. Rebates may be fixed amounts, variable amounts, or contingency based programs. Each program is unique. It may include all products purchased, individual products, or families of products. It may be based on sales, purchases, receipts, bill-backs or other data sets. The supplier could cut off their calculations according to their ship date, invoice date, or bill-back credit date. With all of these scenarios spread across hundreds or thousands of suppliers, how can an organization accurately calculate, collect and reconcile all of the rebates available to them?
Some organization will not calculate the rebates they’ve earned, but will simply track credits and checks received from suppliers to ensure they have received credit on a consistent basis. Obviously, this leaves them vulnerable to mistakes made in the issuance of credits from suppliers as well as leakage in their collection process. Fortunately for them, most suppliers are typically very accurate and responsible in providing them with the credits they deserve. Unfortunately, one or two missing or under-reported credits can cause significant profit loss.
Most wholesale and retail organizations will calculate the rebates they’ve earned based on a single consistent data set and apply that logic to all of the rebate programs. For example, a wholesale client uses their sales data to calculate the rebate funds they have earned by contract across all suppliers. The figures calculated internally are compared to credits received from suppliers and large variances are reconciled annually. The problem with their process is they are not comparing apples to apples for contracts not based on sales; therefore, they are not able to accurately calculate monies earned or reconcile discrepancies for those contracts. Timing issues are also a consideration when trying to accurately calculate and reconcile rebate programs.
Customized software applications are a great tool to ensure that programs are calculated, received and reconciled according to the terms of the agreement. When set up correctly, it is a cost-effective, efficient, and accurate tool to calculate and reconcile rebate programs. The processes surrounding the program are dependent on the amount of manual input that is necessary or requested by the users, as well as the availability of electronic data. When more electronic data is available, the application can be enhanced to include customized data mining and analytical capabilities.
When analyzing and revising rebate procedures, be sure to thoroughly review the calculation, tracking, collection, data entry, and reconciliation processes. Requesting and reviewing statements of accounts from suppliers is an additional check to ensure that all credits are received and deducted.
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