Processing invoices for rebates: To do or not to do, that is the question

Processing invoices for rebates: To do or not to do, that is the question

A topic that we regularly visit during the implementation of DealTrack is whether our rebate management system offers the functionality to process billing (invoices) and receipts for rebate. So, does it?

The truth is quite simple. No, DealTrack doesn’t. Although you may see it as a “cop out” or a gap in functionality, but there are several very good reasons that have caused us to purposely omit invoicing from our SaaS product. If you read further, we will explain why you don’t actually need to invoice for rebates, and even if you still choose to do so, the billing certainly shouldn’t be handled by your rebate management system.

How do companies currently process invoices?

Invoicing for rebate is often a hangover from legacy processes, when pressed, most companies that we deal with often have no real understanding of why they are invoicing for rebate claims at all. In fact, most companies often operate in a half-way house, invoicing for some claims and not invoicing for others (perhaps even on a per supplier basis). Typically, this results in fixed sums being invoiced, but tiered agreements not being invoiced as the amount of the claim can change and legacy processes cannot handle these sorts of agreements. We don’t need to tell you that managing two different processes is convoluted and makes tracking each even harder to manage! So, we ask, why bother?

Clearly processing invoices is not a necessary evil in the world of managing rebates because many companies survive without it (including some of our clients) and therefore, it is not a necessary feature of a rebate management system. Instead of stopping to question why your business bothers to process invoices for rebate, you should ask yourself, how do other businesses survive without invoicing for rebate? With a better understanding of this you can streamline your financial processes and reduce, what we believe to be, an inefficient use of resources.

Why do some businesses process invoices for rebate?

Usually, what we hear from the companies we engage with is that suppliers will not pay rebate claims without an invoice. However, there is a wide discrepancy in the marketplace of most industries. Some suppliers demand invoices, some do not. Whilst we cannot deny that if the supplier demands an invoice before they will pay rebate, one must be provided. But there are very good reasons that this invoice shouldn’t be mastered by your rebate management system.

In tandem with this, we regularly hear that having a raised invoice makes chasing a claim easier, if the supplier doesn’t pay you and an invoice has been raised then you are entitled to debit their account. However, with a dedicated rebate management system this concern around claim success rate, which is brought about by poor legacy processes, will vanish.

With a signed agreement stored in an auditable fashion, there can be no dispute over what is owed, and you possess all the information required to corner and challenge your supplier. At the end of the day, with either approach the power remains in the supplier’s hands because they hold the cash. This links with another concern that causes businesses to feel the need to invoice for rebate; cash flow. Most companies feel that with invoices they can get cash paid quicker, however with or without an invoice the power remains in the supplier’s hands as they hold the cash! Yet again, this concern about increasing cash flow is a consequence of poor processes.

With a rebate management system, you will be able to find more lost claims, reduce disputes and have the information to claim earlier than currently possible. All of the above mean that cash flow is increased as a direct consequence of implementing a rebate management system, making the need to invoice for rebate less of a concern.

Why you shouldn’t process invoices for rebate

When you have a rebate management system in place, your ultimate aim should be to abandon invoicing for rebate. This is because armed with detailed records of agreements and accurate calculations, you should be prepared to wait to receive what your supplier thinks you are owed rather than wasting time and valuable resources trying to get your suppliers onto your timelines.

If the supplier under pays you, you now have the information to challenge this and receive what you are owed in rebate. The benefit of this approach is that your supplier could over pay you if their rebate management process isn’t as accurate or they could pay you the correct amount and you will not have wasted resources raising an unnecessary invoice or chasing them for an amount they would have paid you anyway.

If you process invoices and have suppliers pay these, you are taking on the responsibility for ensuring you are earning the correct amount of rebate and removing the chance that you could earn more than you are owed! While some may see this as dishonourable practice, the truth remains, you are spending more resources and time to reduce the possibility of earning a greater amount of profit. That doesn’t make business sense!

Without a real rebate management process in place it can be hard to have the faith in your numbers to challenge your suppliers or even ensure you are invoicing for the right amount (which is why most businesses don’t invoice for targeted tiered deals), but with a dedicated rebate management system you should have complete faith in your expectations. This will allow you to make the business decision of whether you want to generate an invoice or not.

Why shouldn’t your rebate management system process invoices?

While you may have other financial processes that rely on the generation of invoices for rebate, or sneer at the above, there is one singular truth;

"Rebate management systems should not generate your invoices."

When it boils down to it, your business currently invoices for many things outside of rebate. Where does this take place? Why should invoices be mastered in two different places in one business? Most ERP systems (Oracle, SAP, Sage, Dynamics, Infor etc) contain invoicing functionality, rebate management systems should not impose on them, but should instead work in harmony with them, sharing data.The aim for all business processes should be for them to be centralised in one financial system rather than having disconnected pieces split across multiple systems. This disconnect allows error to creep in and adds friction to the accounting process making reconciliation of invoices to agreements a harder task for your finance team. All of your invoices should be mastered in the same financial system, that is undeniably the best practice. This can be achieved with a data flow from your rebate management system into your billing system via our API with minimal effort.At Enable we have been approached by businesses looking for customisable functionality to allow them to generate rebate invoices that adhere to the structure and format of their other invoices that are generated in a different financial system. The easy financial solution is to use the same financial system.Most rebate management systems on the market are not bound by the same financial compliance rules as finance systems. This means that using them to master your invoices can be problematic at times of audit, the best approach is to rely on your finance system to handle billing and to remain sceptical of any rebate management system provider who offers invoicing functionality.

Make your decision

If your company does wish to invoice for rebates, you will most likely have dedicated financial software more than capable of this task. The fact that our rebate management system doesn’t process invoices shouldn’t be a concern, it should be something to celebrate. We know what our product is and that is a rebate management system and collaboration space for B2B deals. DealTrack can be a vital financial tool, but it is not a finance system. It is not bound by the same rules and regulations a finance system is, it is dynamic and retrospective, months are not locked down like financial periods. You should not rely, or want to rely, on a rebate management system to processinvoices when you are maintaining a finance tool or ERP with the capability to do so.You may be left thinking, if I should use my ERP to raise invoices, why shouldn’t I use it to manage my rebate too?

Elizabeth Lavelle
The Deal Economy

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