Supply Chain Rebates are Overrated...Literally and Figuratively
- 10 Jan 2022
- Supplier Management
Supply chain rebates are common practice. They were popularized during the first Industrial Revolution with the advent of railroads and often were a means of corruption; prices were inflated and rebates were either sneakily noncompetitive or only given to favored customers to create monopolies. Now, in a competitive and globalized supply chain, rebates are widely available for all buyers that use bank-issued pCards (or virtually, “vCards”). Available to everyone, however, does not mean accessible to everyone.
Like buyers in the 1800s, too many organizations today fall for smoke and mirrors; they see the words “cash back” on their bank-issued vCard agreement, pay their suppliers using the vCard, then look at their numbers at the end of the year and realize they didn’t get cash back after all. Rebates aren’t always accessible because they come with a catch: unpredictable reimbursement timelines, minimum transaction or spend requirements and a lot of finance/AP’s time and diligence to meet certain payment tiers and get suppliers enrolled. In other words, rebates are overrated - literally and figuratively - but remain popular.
They remain popular because CFOs have seen them work throughout their careers and it’s an opportunity for AP/finance teams to drive revenue - not just be cost centers. When rebate requirements are not met, finance leaders might chalk it up to a lack of alignment with procurement, poor supplier enablement processes, or lean purchasing practices - and they might be right. But, at a certain point, they need to stop and question whether rebates are even realistic for their business. Too many suppliers might not want to set up an electronic payment structure and are fine with slower payment methods; this is out of finance’s hands and procurement won’t push payment methods if it stalls negotiations. Or, a company may never have to spend as much as the rebate program requires, nor should they necessarily; it can be as simple as that.
The alternative to rebate programs, without further ado, is a card that comes with guaranteed dividends. Rebates almost promise revenue which is effectively: not promising. Guaranteed dividends, on the other hand, are guaranteed. They might not appear to provide as much as rebates, but they arrive in predictable increments (e.g. quarterly) so finance teams can actually factor the money into their planning and forecasting. Having the dividend gives a certainty of revenue and takes away unnecessary pressure or responsibility from the finance team so they can dedicate more time to more important aspects of their role - establishing budget, monitoring contracts for discounts, reconciling payable reports, managing billing cycles and more - while still creating a revenue stream back to the business, and without any additional work!