Rebates are one of the most valuable and useful B2B pricing tactics as they ensure that incentives and discount claims are based on actual – rather than “promised” – volumes of purchases.
However, when dealing with a large number of different rebate agreements, with multiple buyers and/or suppliers, rebate management presents a considerable administrative challenge, with much financial risk involved if calculations aren’t made correctly, or if key data is lost or inputted on a spreadsheet erroneously.
In B2B, rebates offer a fantastic opportunity to cement strong relationships between a supplier organisation and its customer base – much more so than, say, volume-based discounts.
Offering discounts based on volume can be risky. A customer may, for instance, negotiate a discounted price based on buying 1,000 units over a 12-month time period – but then only buy 500. At the end of the year, the supplier is out of pocket and there’s no real way to retrospectively change the customer’s price and no way to ensure the customer buys another 500 units.
Such scenarios are not uncommon and can lead to considerable tensions between buyers and suppliers.
Rebates and other incentives solve this problem for suppliers. The discount or incentive is only honoured – as a rebate – after full purchase of the agreed volume(s) has been made, thus putting the risk of hitting targets on the buyer.
But buyers benefit, too. In any price negotiation, buyers want the best possible value, and purchasing teams in particular want to demonstrate that they are capable of negotiating a good deal. Rebates deliver on both of these fronts. Meanwhile, sellers too, can be satisfied that they are keeping their customer base happy and driving revenue for their own company as part of their sales strategy.
However, as powerful a tool as rebates are for strengthening buyer/supplier relationships and eliminating the gap between promised and actual behaviour, they are nonetheless complex and difficult to manage.
What, then, do organisations need to do ensure their rebate management processes are maintained and tracked effectively?
Access for All
For many years, the go-to tool for rebate management has been the spreadsheet. There are however, numerous problems and risks with this strategy.
To begin with, there are many different types of rebate. Aside from volume rebates, there are growth rebates, retention rebates, mix rebates, ship and debit rebates, indirect customer rebates, price masking rebates, and many other variations. Each have their own objective and their own rules – some are based on purchase volume or value, others repeat purchases over a given time period, still more on percentages and even marketing related spending. Suppliers may offer different types of rebate on different products and different customers may be offered different rates.
It’s an awful lot to manage and calculate effectively when relying on individuals to collate and input data manually on a spreadsheet – a practice that in itself, is prone to errors and omissions, not to mention the time and costs associated with constantly updating them.
What’s more, there comes a point when a spreadsheet can no longer easily, or accurately, manage the increasing amounts of rebate data. When this happens, organisations may be limited to the rebates their spreadsheet software can manage, rather than rebates that drive customer loyalty or achieve other desired business objectives.
And who has access to the data?
Many companies keep all their rebate information on a spreadsheet that is maintained by one person, with accruals managed in a different system altogether. This can easily lead to a misreporting of profits, with serious consequences to follow. Tesco ran into such a problem after overstating profits by over £250 million, resulting in an investigation by the Serious Fraud Office and £2 billion being wiped off its share value. Elsewhere, Monsanto were given an $80 million penalty after allegedly failing to properly account for the costs of a sales rebate.
Another problem comes down to buyer access to the rebate data. Some buying organisations simply leave it up to their suppliers to conduct all the relevant rebate calculations, trusting that the sums add up correctly and that they will be paid the full amount of what is owed to them with no way of validating the figures themselves.
So – what is the solution?
Centralise Your Agreements in the Cloud
Effective rebate management for both buyers and sellers means access for all. All parties need access to the relevant data, agreement details and calculations. A clear and transparent audit trail is required to ensure easy monitoring and that evidence is easily accessible for all rebate claims.
The way to do this is with a rebate management system that centralises all contracts and agreements in the cloud. Such a system provides a single source of truth that can be accessed by anyone – at any time – with the right permissions, ensuring that everyone has access to the information they need.
This single source of data provides all parties – including purchasing and finance teams – with real-time visibility into all communications, negotiations and pre- and post-agreement decisions. This removes ambiguity and allows all stakeholders to accurately track and calculate rebates, earnings and forecasts and to make informed decisions in a timely manner.
Streamline Your Workflows and Approvals
Once information is gathered and stored in a cloud-based centralised location, it becomes much easier to establish a streamlined process for authorisation workflows and approvals.
For successful rebate management, a workflow defines how a document, such as a rebate claim, flows through the system and assigns roles and responsibilities as to who must complete a task or approve the document.
There are several reasons why a workflow system is a rebate management best practice.
It ensures that documents are processed and approved in an efficient and consistent manner. With a rebate management system, it also means that organisations can track the status, history and performance metrics of any specific workflow instance, meaning it’s easy to determine whether and where changes should be made to improve workflow efficiency.
It also means that all team members can view a centralised work list at any time, of the tasks and approvals assigned to them, thereby improving process visibility and efficiency.
Workflows not only help to speed up the process of managing rebates, but also ensure that all agreements are clear, visible and easily accessible by appropriate parties – including buyers, suppliers, and internal and external auditors – and that sign-offs take place in a timely fashion.
A powerful rebate management system will even send automated notifications to alert individuals whenever actions or approvals are required, ensuring that all rebate agreements are being proactively managed.
This Rebate Is Automatic, It’s Systematic, and It’s Hydromatic
Aside from automated alerts, a rebate management system allows B2B organisations to create systematic and automatic processes for practically every element of a rebate deal – the true Grease Lightning of rebate management. This includes the automated tracking of purchases and sales against agreements in real time, giving you immediate results.
It will also automatically perform any recalculations should details change, or if historical data is amended. All types of rebates can be tracked in this fashion, including volume rebates, growth rebates, ship and debit rebates, together with all other special pricing agreements between a B2B supplier and their customer base.
Accruals recording is also automated, and audit logs are automatically generated for every action undertaken in the system. For scenario planning, a rebate management system also provides forecasting and modelling features to drive better decision making. “What if” analyses can be undertaken on specific agreements, helping organisations understand the potential impact of making a change to a rebate condition, or even to account for seasonality. Intuitive and customisable dashboards also allow each team member to create flexible and publishable reports, providing full visibility into required information at all times.
Why Automating Your Rebate and Pricing Strategy Will Help You Model and Analyse the Future Impact of Your Rebate Agreements
Using powerful rebate management tools that automatically calculate rebates at the time of sale – and then track every single update, change, detail and communication throughout the process – means that rebates can be easily analysed for success or failure, empowering you with a future vision that enables you to take appropriate action.
The complexities involved with rebate agreements – exacerbated by the sheer volume of contracts organisations typically deal with – are almost impossible to model using manual tools such as spreadsheets.
With a sophisticated rebate management system, organisations have all the insights they need at their disposal to understand the impact of decisions prior to agreeing them commercially.
With robust deal modelling features, organisations can replicate former deals and use the software to adjust their data criteria (business rules) and view a forecast of what will happen should changes to the underlying rebate conditions – such as an increase in rate – be implemented. This not only assists in strategic decision making (both for new contracts and those coming up for renewal) but improves the forecasting of cash flow as a result of your rebate agreements across the board.
Start Implementing B2B Rebate Management Best Practices with e-bate – The Ultimate Rebate Management Solution
Rebates may be in themselves a B2B pricing best-practice tactic – but best practices in B2B rebate management must also be followed in order to reap the full value and financial reward of a rebate programme.
e-bate’s intuitive rebate management system is designed for both buyers and suppliers, delivered as a SaaS platform to help companies overcome the complexities in managing their rebate and pricing schemes.
The platform automates every element of the rebate process, eliminating spreadsheet reliance, reducing overheads and helping companies manage pricing and increase revenues and profit, whilst ensuring compliance through a full audit trail and comprehensive approval workflows.
e-bate is your single source of all rebate information, providing you with the insights you need to make proactive decisions that drive business value.