Will more restrictions on our manufacturer chargebacks give us more control?

February 8, 2018
Lock down manufacturer charge backs and rebates

Companies implement rebate and charge-back solutions to move away from Excel for managing their manufacturer charge-backs, allowances and rebates.  These trade promotion management solutions offer more opportunities to enforce controls that aren’t possible or practical with manual workflow.  During implementation, the project team often puts many restrictions on the users that plan the rebates and charge-backs.  Their goal is to gain control over the rebates and the deduction chaos that prompted a move to a real rebate solution.

Before we discuss best-practices for controlling trade promotion allowances and rebates, let’s look at a few example restrictions that companies request:

Restriction or Control

Intended Benefit

Workarounds or Unintended Outcomes
  • Can we limit the maximum rebate or chargeback allowance per item that can be submitted for approval?
  • We want to save promotion approvers time by preventing promotions in the TPM solution that exceed maximum discount policy.
  • Sometimes the customer is told to just deduct the amount because the promotion can’t be entered into the system.
  • Another work-around is that the discounts are split into two promotions to get around the limitation.  Each separate promotion meets the criteria and gets approved.
  • Can we add multiple levels and people to the promotion rebate approval workflow?
  • We want more eyes reviewing the promotion because that will provide more control, and fewer trade promotion errors.
  • Adding approval levels adds to the time it takes for promotions to get approved, which can create missed-off-invoice situations, and the back-dating of manufacturer charge-back allowances. 
  • One more downside of this restriction is that the approver assumes the other approvers are closely looking at the promotion, and so they just click approve.
  • Can we prevent the entire chargeback promotion from being submitted when the overall promotional spend per item exceeds the corporate target?  (Fixed fee plus all the per-case rebates and charge-backs.)
  • We think our promotions to be more profitable because planners will not be able to submit promotions with excessive spending because of a fixed cost.  For example, it’s not cost effective to spend $500 on an ad fee that generates only 10 cases with a list price of $20.
  • Planners quickly learn that adding more cases to the estimated volume reduces the overall cost per case for a promotion.   The promotion is submitted and approved, but now the demand plan includes too many cases because the promotion’s volume was over stated.  With so little time to analyze past promotions, these over-estimated promotions may not be identified as an issue.
  • Planners also learn to enter a smaller fixed fee than what they expect so they can get it approved.  They let the the actual rebate claim exceed the planned amount and 'blame' the customer.   

The above table shows that restrictions can create unintended outcomes that are worse than the situation you’re trying to prevent! 

The following are some industry best-practices from 30+ years of helping consumer goods companies manage rebates and manufacturer promotional charge-back allowances for consumer goods:

  • More restrictions don’t always translate into more control: In practice, the opposite sometimes occurs.  Your promotion and rebate planners will find work-arounds for every control that prevents them from getting rebates to the customer.   You lose visibility to rebates done outside the TPM solution.
  • Simpler is often better: More time spent on non-productive workflow steps means less time actually managing your chargebacks and rebates.   Don’t design your overall rebate workflow using the complicated rebate exceptions.  If you over complicate rebate management, you’ll get more push-back from the people that plan your charge-backs.
  • Leverage Real-Time Visibility to gain control: The best way to have control over your chargebacks and rebates is to have appropriate visibility by all stakeholders.
    • Real-time data: Unlike spreadsheets, the best TPM solutions are tightly linked to your ERP.  There’s no need for data entry or updating an Excel spreadsheet because shipments, short-pays, claims, and other data is automatically updated in TPM software solutions.
    • Rebate spending KPIs, including what you estimate, what you incurred, what you paid, your latest estimate, and what you owe by haven’t paid yet. A rebate budget or live accrual can benchmark results and identify potential issues before they become big problems.
    • Audit trail that tracks all the activity of the chargeback life-cycle, including rebate approvals, claims, short-pays, and electronic documentation.

Before you lock down your promotion planning with more restrictions, consider these best-practices to increase your control over manufacturer chargebacks and rebate allowances.

Alex Ring

President, CG Squared