Rebates exist throughout the retail industry, and can help companies in a variety of ways. However, the collection of rebates can sometimes prove a big challenge, and supply chain technology may be much-needed to support and improve the potentially rewarding process.
What is a rebate?
Taxpayers across the UK receive tax rebates at the end of a financial year, if their annual tax liability is less than the taxes paid. In other words, if the money someone actually owes is less than the estimated total that they have already paid, they are refunded the difference.
Rebates also occur within the retail industry, with suppliers providing retailers with reparations. 'Pay to play' rebate collection is sometimes demanded from suppliers by large retailers, as a kind of payment for entry into their stores. In contrast, proportional cost recovery rebates can help both supplier and retailer to maintain control and transparency within the supply chain. Parties are able to preserve quality standards, ethical best practices and commercial value through a non-excessive cost.
French chain Carrefour, the world’s second largest supermarket chain by revenue, claimed that at the end of 2013 it had over €1 billion in outstanding receivables (rebates and other commercial incentives) from suppliers.
The problem with rebate collection
Auditors have highlighted supplier rebates as a key risk for large UK retailers this year. There are no standard procedures in place to help retailers calculate or process rebates, and methods of increasing rebate collection are a mystery to most companies. Retailers aren’t required to publish how much they receive in rebates either, and this discretion can leave important financial information at risk of mismanagement.
Earlier this year, a major UK supermarket hit the headlines after overstating its profit forecast by millions and badly damaging its stock market value. Reuters argue that these accounting errors may have resulted from poor management of supplier contracts and accounting for rebates.
The supermarket chain blamed "accelerated recognition of commercial income and delayed accrual of costs" for the inaccurately reported expected profits. In other words, projected and actual sales figures may have been different, skewing projected rebate figures. Rebates for retailers are often tied to sales volumes - John Lewis recently brought in a “growth rebate scheme” which requires suppliers to pay rebates if sales of its items rise significantly. Get sales volumes wrong, and rebates will get confused too.
Simplifying and increasing rebate collection with Segura
Peter Pope, Professor of Accounting at the London School of Economics, explained to Reuters that “good internal audit procedures” are badly needed for rebate, "because there is so much need for judgment and discretion to be exercised”. Luckily, technology can help retailers manage rebates for garment trims and packaging.
Segura tracks, analyses and provides transparency for all transactions within the secondary supply chain. Our software platform automatically logs and monitors every individual order placed within a framework of pre-approved suppliers and subcontractors. This ensures that all rebates are calculated alongside each transaction, meaning no more guesswork. Retailer can have confidence that they are only buying from ethical suppliers, as approved by you – with no nasty surprises.
Originally published 18/11/2014