What is a rebate management system, and why every business must have it?
Rebate management systems are transforming buyer-seller relationships by streamlining the rebate process and identifying revenue opportunities for everyone in the ecosystem. Read this quick guide to the rebate management system, how it works, and why you should care.
Did you know that customers are 75.4% more likely to buy your products if you offer a rebate? (Source)
Rebates play an integral role in industries like electronics, building supplies, retail and wholesale distribution. They can be offered on certain products, in specific locations, and on certain types of transactions, which makes them complex.
Broadly, rebates are of two types: vendor rebates and customer rebates. Vendor rebates are common among suppliers and distributors, and customer rebates involve distributors and contractors. In a vendor rebate, accounts receivables are involved. In a customer rebate, accounts payables are involved.
The logic behind rebate programs is simple. A buyer agrees to purchase a certain product or volume. After the purchase, the seller refunds a percentage of the price paid. It sounds like a win-win for all! The seller gets to reward customer loyalty and incentivize the sale of goods. The buyer, meanwhile, enjoys lower costs and greater profit margins.
While rebate programs are powerful strategies, manufacturers and retailers use to reward loyal customers and sales partners, they are effective only if sales against rebate agreements are tracked closely, and claims are paid out promptly. Unfortunately, many B2B companies aren’t realizing the full benefits of rebate agreements because they’re not doing the rebate management effectively.
What is rebate management, and why is it a challenge?
Rebate management is the process of documenting contracts, tracking sales against them, and managing accruals on time.
Although the logic behind rebate programs is simple, the reality is often complex. To begin with, the contracts are very sophisticated. A single rebate agreement can contain multiple rates, which customers qualify for by reaching specific thresholds. The particulars of any contract must be clearly understood and documented by both parties.
The next challenge is the sheer volume of rebate contracts.
The volume, variety and complexity of contracts make rebate management a challenge. For example, most big distributors have hundreds of suppliers, and tens of rebate contracts are signed with each one of them. A lot of financial risks are involved if the contracts are not tracked, or calculations are not made correctly on both sides of the trading relationship.
Did you know that rebates worth over US$5 million go unfulfilled yearly?
Poorly executed or unmanaged rebates can mean the difference between profit and loss for a business. For many companies, revenue loss due to ineffective tracking of rebate programs translates into hundreds and thousands of dollars each year.
All of these problems arise because companies lack the proper tools to manage this complex process accurately and efficiently. Traditional ERP systems include rebate management functionality but can only support a limited range of contract types. And we know from experience that over 300 types of rebate contracts are out there. As a result, both suppliers and distributors fall back on using legacy systems and spreadsheets, leading to:
- Massive manual effort
- Frequent data errors
- Inconsistent record management
- Lack of insight into agreements
- Data security issues
Sooner or later, suppliers end up in disputes with distributors, damaging the relationship that rebate programs were supposed to nurture.
But here’s the good news: all these problems can be solved, and confusion can be eliminated using a rebate management system.
What is a rebate management system?
A rebate management system is software designed to simplify the management of these complex trade agreements. An effective rebate management system will act as a single place for recording every type of rebate agreement, thus creating a single source of truth for all the stakeholders involved in a company’s rebate management process — from sales to commercial and finance — and provide a transparent audit trail for regulatory compliance.
The best rebate management platform will provide tools to:
- Analyze the potential impact of proposed agreements
- Expedite approvals within the system
- Allow all parties to collaborate and sign off on the agreement
- Utilize the supplier or distributor’s company’s ERP system for data
In a nutshell, a rebate management system can help companies get more value from their rebate programs while reducing hassles, risks, and costs.
What are the business benefits of a rebate management system?
Here are some of the business benefits of using a rebate management system over manual methods:
- Streamlined processes: Using manual methods to manage rebates opens the door to errors and revenue leakages, not to mention frustration and wasted time trying to keep up with hundreds of contracts. A rebate management system significantly decreases the amount of information to be entered manually, making it easier and more efficient for teams to collect data.
- Improved collaboration: A rebate management system fosters internal and external communications among stakeholders as updated information is centrally stored for easy reference and follow-up. A genuinely collaborative rebate management system also allows for negotiation and approval in the same system, enabling teams to share agreements and understand their potential benefit before engaging in discussions.
- Increase profitability: There is a high likelihood of missed rebates and false accrual accounting using traditional rebate management methods. By modeling all your contracts accurately and gathering information from disparate data sets, a rebate management system can tell you what rebate to claim, when and from whom.
- Increased process visibility: Lack of visibility is one of the biggest hurdles to effective rebate management and is a strong driver for stakeholders to consider deploying a modern rebate management system to improve their existing processes. With a rebate management system, your teams can access vital information in real time from one single application, reducing error rates and increasing organizational efficiency.
- Timely reporting and accurate forecasting: For your business to make the best contracts and stay ahead of the competitors, reports, and forecasts must reflect the current data, which is often not possible with traditional data collection and analysis methods. With a rebate management system, you can gather, store and analyze data in a centralized location, allowing you to generate more accurate reports and forecasts.
A rebate management system might seem like a significant investment initially, but its advantages are compelling for any business to invest in a unifying and robust system.
Building a business case for a rebate management system
Making a business case is one of the most critical steps in implementing any new system. It’s difficult to convince stakeholders to write a cheque, especially when this involves changing traditional business processes that they think have worked fine for decades without failure.
As with all investments, technology investments too must deliver business value. To define this value and related costs, the business case must outline the plan, pull together all the assumptions and reasoning for why you want to implement this new system, and clarify everything, including costs, benefits and potential challenges.
When creating a business plan for a rebate management system, make sure to include the following key points:
- Describe the critical business challenge
- Assess the potential benefits of deploying a rebate management platform
- Assess the costs
- Assess risks that might arise during or after the implementation
- Recommend the preferred solution
- Explain the implementation approach
- Measure potential ROI
Let’s see how Company A improved its rebate revenue by deploying a rebate management platform.
Company A engages in rebate programs with hundreds of suppliers annually, accounting for millions of dollars of annual revenue. Traditionally, this company had been managing the rebate management process in Excel sheets, with a separate sheet for each supplier. This presented problems around accessibility for teams, the accuracy of data, and the ability to report on rebate claims.
So, this company decides to deploy a rebate management platform to save time and effort and improve the visibility and tracking of rebate claims. The system has helped the company increase revenue from rebate claims from suppliers by accurately reporting on all agreements and recording payments. It’s also helped the company improve the visibility of approaching growth rebate thresholds by ranking the rebate programs with the highest ROI, so it can act promptly to maximize the benefits.
A rebate management system can help you streamline the end-to-end rebate management process, resulting in happier customers, time and money savings, and increased visibility. It will allow forecasting and analyzing rebate claims to maximize your bottom line.
There’s still so much to be shared about a rebate management system beyond the scope of this ‘quick guide’ blog— from choosing the right rebate management platform for your unique needs to how these game-changing systems are set to evolve very soon.
At Rebate-ai, we’re constantly helping manufacturers, buyers, and wholesalers worldwide understand and embrace the potential of a rebate management system. Contact us for a complimentary demo. We’d love to help you too.