A rebate is a discount granted by a company to its customers on the basis of sales volume over a specific period of time known as validity period of the rebate agreement.
· By providing rebates, the company gains in terms of sales volume as they get a price advantage and the rebates act as incentive for the end customer or the dealers to buy from the company. As there is a turn-around time for the rebates, the company earns interest on the money before it is paid out.
· Rebates also give the company a way to show inflated sales if due to the turnaround time, the settlement date falls in the next fiscal year or quarter. This way companies can keep pace with their market projections.
· By using the tool of rebates, companies can give a discounted price for some brands while maintaining high price for successful brands, thus increasing sales volume even when maintaining high price on some brands.
· To enter into a market, new companies give rebates on the purchase of their products thus garnering attention of customer and providing incentive to the consumers to buy.
For retail goods, customer is price sensitive and reacts negatively to any increase and switches to different brands available at a lower price. With the help of rebates, retailers can maintain an increased price and still be able to maintain sales volume because with rebate discounted items, the increased MRP does not affect the customer’s pocket.
The end Customer who consumes the product benefits from rebates as he/she has to pay a price which is lower than the market price for the same product. Since, there are many types of rebates, the rebate which involves minimum effort from the consumer’s end to redeem it, will be most popular and hence boost sales. For this reason, Mail in Rebates, are not that popular whereas instant rebates, rebates on credit cards, etc. are preferred by consumers.
Rebates are not given by Company to every Dealer or Consumer. For the rebate to be applicable, certain conditions need to be met. These conditions may be a cut off sales volume beyond which the rebates are applied, or certain combination of product, customer, and market to stimulate sales in that. Thus, due to these dependencies, the rebates provide the recipient with exclusivity and price advantage and the company benefits from the increase sales volume.
Rebates in SAP
The ERP packages like SAP have this functionality integrated into their suites and provide the required parameters to implement it successfully for its clients. All the business aspects related to Rebates are mapped in SAP for seamless implementation. Rebate agreement types are created to define the type of rebates to be applied.
In business, a rebate is applied for a specific Sales org, Billing Document Type and Payer. So, in SAP, these components should be made relevant for rebates and are the prerequisites for applying rebates. After setting the prerequisites, rebate agreements are created belonging to certain rebate types with rebate conditions based on which the rebates will be applied. Then, once there is sales volume in the rebate agreements after accruals, rebates are processed further for settlement. Settlement can be Partial/Interim where the rebates remain open for further accruals or Final, in which case, the rebates get closed and are not applied further. Throughout, the rebate details of recipient, condition, scales, accruals, settlement, etc. can be monitored using Rebate Reports. In business, multiple rebates are created at a time for various markets and to aid this business need, SAP has functionality for Mass Creation, Amend and Settlement of rebates. Also, a different kind of rebate is given by companies which do not depend on run time sales volume; instead rebates are applied as a Lump Sum. SAP incorporates this requirement with the Lump Sum Rebates functionality. We will now have a brief on Rebates as seen in SAP.
Rebates Processing in a Nutshell
Rebate agreement types are created for valid data using configuration and rebate conditions are assigned in the pricing procedure to be used. Once this is done, we can go ahead with rebates processing. In a generic process, the following steps are followed:
1. Set up prerequisites2:
a. Activate Rebate processing in the Sales Organization.
b. Activate Rebate processing in Billing Document type.
c. Activate Rebate in Payer Master Record.
2. Create Rebate Agreement.
a. Condition records are set.
b. Saved to give a rebate agreement number.
c. Rebate agreement can be edited by VBO2 and Displayed by VBO3 using the rebate agreement number.
3. Order is processed till invoicing on which the rebate will be applicable.
4. The rebate sales volume is made current by updating the rebate and rebate amounts are accrued.
5. Open rebate for settlement:
a. For Partial settlement, click on Pay. In this case, the rebate remains open and its status id either A or B.
b. For Final settlement, click on Execute settlement. In this case, the rebate is closed and its status changes to D.
6. Credit memo request is generated.
7. Billing of the credit memo request is done to generate the Invoice and complete the settlement process.
Now let us go into detail of the Rebate Processing in SAP.
Prerequisites for Rebates Processing
For the rebate to be applicable to a customer, following prerequisites should be met:
A) Activate Rebate processing in the Sales Organization.
Path: SPRO: IMG – Enterprise structure – Definition – Sales and distribution –
Define, Copy, Delete, Check Sales Org.
Select sales org., click on detail button
Tick the Rebate Processing active check box.
B) Activate Rebate processing in Billing Document type
Path: SPRO- IMG- Sales and distribution- Billing-Billing documents- Billing type
Select the billing type; go to details (T-code- VOFA)
Tick the checkbox- relevant for rebate processing
C) Activate Rebate in Payer Master Record
Open the Payer Master record of the customer -T-Code: XD02
And go to Sales area data section, Billing tab.