Rebate accountants have always had a tough job correctly accounting for rebate accruals. In industries such as construction, automotive, pharmaceuticals and FMCG where rebates are an important part of trading, the sheer volume of deals to handle and the level of complexity involved with each of them, can easily result in incorrect calculations of amounts due.
This is especially true when relying on outdated systems like spreadsheets and basic accounting software which are cumbersome, slow and inherently open to human error. The dangers of a poor rebate accrual process are many and concern accuracy, auditory compliance and predictability, which ultimately impacts decision-making.
Let’s consider these dangers in more detail and how implementing rebate management software can bring order to your rebates and more certainty to your profitability.
Managing rebate accruals is a complex process. In simple terms, a rebate accrual is the expectation of income at a later date. Often, the rate at which you earn rebates differs from the rate you receive them. For example, you may earn rebates quarterly, based on your volume of purchases from a certain supplier. However, that same supplier might only pay the rebate not quarterly, but at the end of a twelve-month period.
This means that the rebate income must be accrued for – even though the money isn’t actually in the bank yet – in order to accurately calculate profit and loss.
Further complications are encountered when agreements are updated or changed mid-period (as often happens), or when the incentives themselves are tiered – so, one rebate accrual calculation depends on others earlier in the chain.
Relying on spreadsheets to perform manual calculations of rebate accruals over multiple agreements with multiple suppliers is, quite frankly, a recipe for disaster. Not only does it slow down the whole rebate accounting process, but it can lead to miscalculations of rebate amounts that are due and a misreporting of profits on income statements.
Over or Understating Profits
Understating or overstating profits can have serious consequences – just ask Tesco. In 2014, the retailer ran into trouble when it mis-booked rebate payments from suppliers, leading to a £250 million overstatement of profits. Consequently, more than £2 billion was wiped off its share value when an investigation from the Serious Fraud Office ensued.
More recently, as reported in The New York Times, the US-based agribusiness giant Monsanto was fined $80 million by the Securities and Exchange Commission when it was found that the company “had insufficient internal controls to properly track millions of dollars in rebates […] which led it to misstate corporate profits over a three-year period.”
As of January 2018, a new financial reporting standard – IFRS 15 – by the International Accounting Standards Board has been in effect, placing more scrutiny on companies that have to account for rebates, discounts and incentives. IFRS 15 places strict rules on companies in terms of revenue recognition, including the correct reporting of rebate income.
Companies that want to adhere to the financial reporting standards and not fall foul of the legislation must ensure that rebate accountants have full access at all times to up-to-date and accurate information of all rebate agreements and understand precisely the value of all accruals to ensure compliance.
Regain Control Over Your Rebate Accruals
Organisations need to have complete control and confidence in their rebate accrual accounting process to ensure both accuracy and compliance. It’s practically impossible to achieve any of this, however, if your accounts paint an unreliable picture of rebate accruals.
In such scenarios, rebate income can be missed and profits can be misstated, which can have very serious consequences indeed.
With e-bate’s powerful rebate management software solution, all deals originate within the system itself, providing you with all the data required to manage your rebate accruals accurately from start to finish. With e-bate, all deals are automatically calculated via our real-time calculation engine, with any updates or changes made to the deal automatically captured and recalculated so there can be no chance of error or omission, while profit statements can always be accurately compiled with a clear audit trail.
Any lack of visibility or accuracy of profit margin can negatively impact your business.
With a dedicated end-to-end rebate management system, you can immediately eliminate the risk of error with manual calculations – particularly important when trying to accrue accurately for tiered rebate agreements – with all transactions posted directly to your finance system. This gives you ultimate visibility, helping you ensure compliance, while providing you with accurate data as to which deals have yielded which rebates so you can be sure you’re claiming for everything that you’re owed.
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.
Delivered as a SaaS, our rebate management software comes with a built-in calculation engine that will help you calculate all types of rebates while allowing you to track and analyse all data against your agreements in real time.
In addition, our robust deal modelling features allow you to make rapid assessments of the benefits of any deals you are negotiating. The platform automates every element of the rebate process, eliminating spreadsheet reliance, reducing overheads and helping companies manage pricing and increase revenues and profit while ensuring compliance through a full audit trail and comprehensive approval workflows.