When it comes to rebate and special pricing agreement (SPA) management, distributors are leaving money on the table. They may not even realize they’re doing it.
Even small inefficiencies in how you manage rebates and SPAs – including ship-and-debits, claimbacks and other financial agreements with vendors – can add up to big losses.
Poor rebate management can be a silent profit killer. Here are three common and preventable mistakes we see distributors making in rebate management:
1. Not tracking expected rebates or payments
In the case of rebates, the axiom “trust, but verify” applies. While vendors operate in good faith, the complexity of rebate programs makes errors inevitable due to manual calculations and siloed systems. Vendors face similar challenges to distributors, including multiple distributor agreements with varying terms to manage. This increases the likelihood of miscalculations, missed rebate credits and discrepancies in reporting.
The lack of tracking leads to lost profitability — vendors have reported that their distributors negotiate rebates, then forget to claim them. Other distributors actively track rebates with their top five or 10 vendors, knowing they’re leaving money on the table with the rest, but don’t have the time or people to track them all.
This is exacerbated by long resolution times and costs because some vendors report at the end of the year. A distributor once discovered a $1 million discrepancy that took months to resolve — an issue that could have been caught much sooner with proper tracking.
2. Not keeping a close eye on rebate tiers
Recently, an HVACR distributor shared that he almost missed out on $10,000 because he was $2,000 shy of their next rebate tier. The distributor’s supplier alerted them of the near miss.
The distributor didn’t know because they weren’t tracking it. Unfortunately it’s a common tale; other distributors estimate millions of dollars left on the table due to missed tiers.
It’s understandable, but easily solvable. Distributors’ teams have to juggle and track hundreds of vendor rebate agreements. Centralizing contracts and rebate programs allows distributors to see what is really impacting profitability. Distributors need to break down silos so they can make faster, more accurate decisions and maximize rebate potential.
3. Managing rebates in disconnected systems
Many distributors still manage rebate programs using spreadsheets, manually tracking transactions, rebate accruals, market development funds (MDF), vendor agreements and serial numbers for claimbacks. Most are unable to look at product margins net of growth rebates and understand true costs. Critical information is scattered across shared folders, PDFs, Word documents, ERP and CRM systems. That leads to data silos that make visibility and accuracy a challenge. Every copy-and-paste action or manual entry in a spreadsheet introduces potential errors and lost revenue.
This also doesn’t provide a way to track the data or collaborate in real time; it’s highly inefficient. Disconnected rebate management also limits a distributor’s ability to optimize rebate strategies. Without real-time data, distributors may fail to take full advantage of volume-based rebates or miss opportunities to renegotiate terms. Inaccurate or delayed rebate reporting can also create cash flow uncertainty, impacting profitability.
How to Fix It
The longer you wait to fix these mistakes, the more painful it will be to unwind the damage. Unrealized gains compound over time, having an impact that can reach into the millions. The problem also becomes more complex as errors add up.
Here’s where you should start:
Educate your team. A core component of change management is training. If your teams aren’t aligned on proactive rebate management, you’re losing money. When we ask distributors how much they’re losing to missed tiers, uncollected rebates and errors, most don’t know. Those who do often discover six- and seven-figure gaps — and everyone has a cautionary tale about missed opportunities.
Automate and centralize rebate tracking. Spreadsheets won’t help you. Tools exist today to track rebates and proactively manage these incentives in real time in a central location. If you want to maximize your rebates, you need visibility into earned rebates, missed opportunities and pending claims.
Open lines of communication with vendors. Proactively set up a verification process to cross-check reports, leverage a shared portal to monitor rebates in real time internally and externally, and use tools that flag missing claims rather than waiting for discrepancies to emerge. Distributors get paid faster when all the supporting transaction data is readily available.
Get in the driver’s seat. Track rebates in real time so that errors don’t pile up and missed claims don’t turn into lost profit. This also ensures you avoid missing deadlines and that you’re taking full advantage of your vendors’ growth tiers. Rebates are designed to ensure mutually aligned incentives, loyalty and strong long-term relationships. When all the data you need is at your fingertips, you can focus on hitting shared goals.
Rebates aren’t a nice to have. They’re a must-have for many distributors who depend on them to grow their bottom lines. You wouldn’t forget to collect on a sale, so why are you letting rebate dollars sit untouched?
Ilia Papas is the CEO and co-founder of Band, a developer of rebate management software for distributors, manufacturers and purchasing groups.
