{"id":13889,"date":"2020-05-11T00:06:00","date_gmt":"2020-05-11T00:06:00","guid":{"rendered":"https:\/\/enable.local\/?p=13889"},"modified":"2025-08-10T00:09:53","modified_gmt":"2025-08-10T00:09:53","slug":"7-common-problems-with-accounting-for-rebates","status":"publish","type":"post","link":"https:\/\/www.enable.com\/resources\/articles\/7-common-problems-with-accounting-for-rebates\/","title":{"rendered":"7 Common Problems with Accounting for Rebates"},"content":{"rendered":"\n

We have come across many problems with rebate management<\/strong><\/a> spanning commercial, financial and operational processes. Today, we\u2019re focusing in on the financial side of rebate management, where most issues revolve around accuracy, predictability and auditability. When businesses get these financial areas right, they win the battle for trust and confidence in their figures, allowing commercial and operational teams to make better, more profitable trading decisions.<\/p>\n\n\n\n

Accounting processes vary widely between businesses. This is likely because there is no rebate accounting standard to strive toward and ERP systems generally cannot cope with the level of complexity involved in rebate deals. These are just a few of the challenges that finance teams accounting for rebates face.<\/p>\n\n\n\n

Over the years, we have discovered seven areas where accounting for rebates can be a problem. In this blog, we\u2019ll walk you through each of these obstacles to help you avoid the associated pitfalls.<\/p>\n\n\n\n

Problems with Rebate Accounting<\/h2>\n\n\n\n

1. Understanding the rebate agreements<\/strong><\/p>\n\n\n\n

Core business systems are often inadequate for capturing and representing agreed rebate deals. When you add the subjectivity that rebate agreements can be viewed with into the mix, the result can be a misaligned understanding and incorrect calculation of amounts due.<\/p>\n\n\n\n

Without a true connection with the commercial team to understand the deal, finance teams can be left guessing, unable to accrue the correct amount or match payments to the deals. This in turn makes correctly showing rebates on income statements more challenging and slows down the whole rebate accounting process.<\/p>\n\n\n\n

With Enable’s rebate management product, the deal itself is originated from within the system, eliminating these disconnects and accurately capturing any updates or changes made to the deal mid-period.<\/p>\n\n\n\n

2. Managing accruals in rebate accounting<\/strong><\/p>\n\n\n\n

An accrual is the expectation of income at a later date. Deal terms specify payment frequency, which may mean one deal needs to be accrued for and values agreed several times during its life. Perhaps the biggest challenge is accruing for tiered incentives and deals which are \u201cstrung,\u201d meaning one calculation relies on others earlier in the chain.<\/p>\n\n\n\n

Estimating the value you are likely to spend with a trading partner over a given agreement is difficult without extensive reporting and forecasting functionality, frequently resulting in incorrect estimates of value. However, with Enable\u2019s rebate accounting software, the standard reports suite and executive summary functionality allow these financial estimates to be assessed with greater accuracy.<\/p>\n\n\n\n

3. Rebate realignments<\/strong><\/p>\n\n\n\n

Reversing accruals when payments have been received is common practice. But what happens when your accrual for a large period of the year is too large or too small? This will inevitably happen in areas where estimates and forecasts are required for tiered deals, mid-period changes and any data inaccuracies.<\/p>\n\n\n\n

If your rebate accrual is incorrect, a rebate realignment is required. This process can create a spike in the income statement to move your year-to-date average back to the right level. If that is not fully explainable, then trust and confidence in the figures will be eroded.<\/p>\n\n\n\n

Your company needs to have complete confidence in their accounting accruals process to ensure they are not overstating or understating profits at different periods throughout the year.<\/p>\n\n\n\n

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