A rebate is a retrospective discount or end-of-period refund, granted by the supplier to customers as a sales incentive. Companies use customer rebates as a business strategy to improve customer satisfaction and increase sales.
Company rebate models can be quite complex and need system support for calculation, reporting and analysis.
Sales Part Rebate Groups
These are used to define when the rebate calculations shall be performed. Sales parts can be classified in different groups. They are needed when defining the rebate calculation rules.
Assortments, which groups parts in a hierarchical way, can also be used as an alternative to sales part rebate group, to define the rebate plans.
Rebate Types
Rebates or sales incentives can be of different nature and are very company-specific. Any number of types can be defined.
Rebate Agreement
The agreement contains the values and terms that apply to the customer rebates. Each agreement can be connected to one or several customers (rebate receivers).
They are very flexible and can be easily modified.
When working with customer hierarchies, rules can be created to allow, for example, parent customer’s rebates to be dependent on the sales of directly connected children customers.
Rebate agreement lines for periodic settlement
The agreement lines are the rules used for the rebate calculation, with conditional parameters that determine when the rebate shall be calculated and values for how the rebate calculation shall be performed.
The conditional parameters are;
valid-from date
sales part rebate group or the assortment and the node
customer hierarchy level
The values used for the calculations are;
the rebate type
the rate
Rebate agreement lines for final settlement
These rules are used for the final rebate calculation, with the same conditional parameters as before but instead of having a fixed rebate rate, it varies, based on the following;
The total sales volume targets
Rebate rate targets
When the customer order has been delivered and invoiced, and when the conditions are met to calculate rebates, a rebate transaction is created for;
the rebate type as defined on the agreement line.
for an amount that is the product of the invoiced customer order amount and the rebate rate as defined on the agreement line.
for the ordering customer or eventually for its parents, when working with hierarchies
A rebate settlement is a standard analysis of all the rebate transactions processed during a certain period. The final purpose is to create a credit invoice for a partial refund of the total amount spent by the customer.
There are two types of settlements;
Periodic settlement, based on the rebate transactions
Final settlement (subsequent), based on the total sales volume
These settlements can be used in 3 different strategies:
1) Periodic Settlement Strategy
The periodic settlement is an analysis performed when the company has as strategy to refund the customer a fixed portion of the sales price of each single invoice line.
This is done by consolidating all rebate transactions occurred during a period of time, summing up the rebate amount earned by the customer.
The basis for calculating periodic rebates is the sales net amount and it also applies for the Use Price Including Tax functionality as well.
This needs to be started by running the periodic settlement job, which can be scheduled.
2) Final Settlement Strategy
The final settlement is an analysis performed when the company has as strategy to refund the customer a certain portion of the sales price on condition that a certain value of goods is bought (target sales). The actual rebate amount due might vary according to the money volume of business done (what the customer has spent) over the period of time, instead of according to each single invoice amount as the periodic settlement does.
In such situations, the company needs to run the final settlement.
The total sales volume is compared to the targets as defined on the rebate agreement to determine the rebate rate to apply.
The final settlement calculation needs to be started by running the final settlement job, which also can be scheduled.
Besides the creation of the final settlement, all rebate transactions are updated with the final rebate calculation.
Final settlements are defined per periodic settlement line in a rebate agreement. For the same rebate group (or assortment node), rebate type and Hierarchy level, there can be a few periodic settlement lines with different Valid From dates. The final settlement entered per periodic settlement line with the latest valid from date within the period of final settlement will be valid.
The basis for calculating final rebates is the sales net amount and it also applies for the Use Price Including Tax functionality as well.
3) Combined Settlement Strategy
A company might also have a third strategy, to run both settlements, running first the periodic settlement and after a certain period of time, run the subsequent final settlement. In this case, a credit invoice is created for the difference between the final settlement amount and the sum of the previously invoiced periodic settlements.
The ultimate purpose of the settlements is to create credit invoices as a refund to the customer.
When creating invoices, the rebate provision accumulates each time an invoice gets posted.
When the credit invoice is for a final settlement and if the periodic settlements have been previously invoiced, then a credit invoice is created for the difference between the final settlement amount and the sum of the previously invoiced periodic settlements. Before printing and posting the invoices, it is possible to make manual adjustments to the rebate lines. For a sales tax company rebate credit invoice will be created without taxes. Using the Set Default option in the Customer Invoice/Lines tab and the Tax Lines dialog box it is possible to calculate the taxes. When creating the rebate invoice for surcharge VAT, the parent tax is considered and the child tax is ignored. The settlement can be used for performing different analysis. Besides this, it is possible to follow up the accrued rebate cost consumption, since it might be necessary to make manual reconciliation of those accounts at the end of a financial period.