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· N Khanna

The rebate you earned is split across 2 vendor records

A supplier rebate is paid on the purchase total you report. Your own system builds that total 1 vendor record at a time. On an illustrative distributor, $170,000 of a $1,080,000 year sat under a second record, so the claim missed the $1,000,000 tier and came in at $9,100 instead of $27,000. That's $17,900 a year, and the fix is a saved report.

A loose ink and wash drawing of a long wooden table holding 2 open paper trays side by side, each with a similar stack of invoices. A tied bundle of papers sits on a small postal scale on the floor beside the table, weighed on its own. An open green cash box at the end of the table, the only colored object, holds a few coins.
The whole thing up frontA supplier rebate gets paid on the purchase total you report. That total comes out of your own system, 1 vendor record at a time. On an illustrative distributor, 1 manufacturer billed from 2 places, so accounts payable set up 2 vendor records. The claim counted 1 of them. It showed $910,000 in purchases, missed the $1,000,000 tier and came in at $9,100. The real total was $1,080,000, which pays $27,000. That's $17,900 a year from 1 supplier. The fix is a saved report and a date on a calendar.

When I read a rebate agreement, I start at the back. The rate is on page 1. The part that decides what you get paid is near the end (what counts as a purchase, and when the claim is due).

The check shows up in the spring. Everyone’s pleased to see it. Nobody asks whether it’s the right size.

I’d ask about the number the rate gets multiplied by. That number comes out of your software.

How the program works

Here’s the illustrative program I’ll use for the arithmetic. Yours will differ (rebate terms vary a lot, so read your own).

  1. Buy more than $750,000 in the calendar year and the rebate is 1% of everything you bought.
  2. Buy more than $1,000,000 and it’s 2.5% of everything.
  3. File a claim within 90 days of year end, with a purchase report attached.

Cross $1,000,000 and the rebate on the whole year goes from 1% to 2.5%.

Where the total gets split

Our illustrative distributor buys from this manufacturer 2 ways. Most orders go to the main plant. Some go to its regional warehouse, which invoices under a different name and a different remit-to address.

Accounts payable did the sensible thing and set up a vendor record for each (the invoices really do come from 2 places). It’s how you keep payments straight.

In February someone runs the purchase report for the claim. They pick the vendor record they know. It shows $910,000.

The other record holds $170,000. It never makes the report.

Year to date purchases from 1 manufacturer, by vendor record A stacked bar chart of cumulative purchases from 1 manufacturer at the end of March, June, September and December. Each bar has a larger part for the main plant vendor record and a smaller green part for the regional warehouse vendor record. 2 dashed lines mark the rebate tiers at $750,000 and $1,000,000. By December the main plant record alone reaches $910,000, below the $1,000,000 line, while both records together reach $1,080,000, above it. A note says the claim counted 1 record, so it was paid at tier 1. Year to date purchases from 1 manufacturer Illustrative distributor, cumulative at each quarter end Main plant record Regional warehouse record Tier 2 at $1,000,000 2.5% of everything Tier 1 at $750,000 1% of everything $1,080,000 $910,000 Mar Jun Sep Dec The claim counted 1 record: $910,000, paid at tier 1
Illustrative figures. The regional warehouse record is 1 of 2 records for the same manufacturer.

The arithmetic

  • What the claim showed: $910,000 at 1% comes in at $9,100.
  • What was actually bought: $1,080,000 at 2.5% comes in at $27,000.
  • The difference: $17,900 for 1 year, from 1 supplier.

It’s identified money. It only becomes cash if the claim gets corrected, and whether a manufacturer takes a late correction depends on the agreement.

Why nobody sees it

The agreement is a PDF in someone’s inbox. The purchase history lives in the accounting system, where the vendor list is organized by who sends the invoice (not by who makes the product). Nothing connects the 2.

And nobody runs the total during the year. So in October nobody can say how close the business is to the next tier, or which orders would get it there. That running total is a buying decision too (if you’re $60,000 short in October, a stocking order can close the gap).

What to do this week

You don’t need us for this. It’s an afternoon.

  1. Find every rebate agreement you have. Put the thresholds, the rates, the period and the claim deadline in 1 sheet.
  2. In your vendor list, look for records that belong to the same manufacturer. Same parent name, same tax ID or the same product lines are the usual clues.
  3. Build 1 saved report that adds those records together, per program, year to date. Run it once a month.
  4. Put each claim deadline on a calendar, with a person’s name next to it.
  5. Pull last year’s claim and re-run it with the grouped total. That tells you if there’s anything to go back for.

What we’d look at

During an audit, this is 1 of the places we check. We group the vendor records, re-run every claim filed last year against the grouped totals, and put any gap next to the agreement’s own terms.

I’d start with your biggest supplier. The worst case is you confirm the check was right, which is a fine thing to know too.

Happy to be told I’m wrong on any of this. If you run the count, I’d like to hear what came back.

We run this as a fixed-fee audit. $2,500, and if we find less than $7,500 a year we refund it.

See whether it fits your company