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Customer rebates on orders not invoiced goods

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We have several rebate agreements in place with a number of our customers. In all circumstances this has been on the value of goods invoiced in a given period, usually an annual basis. However one of our customers has come back asking that the rebate is calculated based on orders placed within the period.

Just looking for thoughts:

By accruing for the the rebate on a monthly basis costs & revenue do not really match up as the accrual will be running ahead of revenue generated - not really a big deal but also not quite right either

There could be the siutation that we are paying rebate ahead of completion of goods for example an order is placed in December, it is agreed that payment is to be made in January with the rest of the prepvious calendar year orders but the goods will not be completed and delivered until March - not good for cashflow as if the order is cancelled we are waiting until the end of the year to recover

Especially in the situation above, how does this interact with the Bribery legislation?

 

Many Thanks,

Replies (6)

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By Bobbo
20th Jan 2022 16:05

Tesco up to their old tricks again I see

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By paul.benny
20th Jan 2022 16:50

Just say no.

Rebates based on orders is open to manipulation by customer - orders cancelled, orders cancelled and resubmitted, etc.

Dunno about your systems but in general, it's much easier to track actual invoicing rather than orders .

As for bribery legislation, my understanding (mostly derived from US legislation), bribery is about payments to individuals. Payments to companies are unlikely to be construed as bribes if they clearly relate to a commercial transaction.

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By David Ex
20th Jan 2022 22:24

LornaM82 wrote:

However one of our customers has come back asking that the rebate is calculated based on orders placed within the period.

Tell them that’s not how you do it - and use your illustration to show why not.

I don’t understand the bribery legislation point. Who’s bribing who?

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By Tax Dragon
21st Jan 2022 05:56

Sounds like madness.

Is it Tesco?

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By Tax Dragon
21st Jan 2022 06:16

If the issue is demonstrating the madness to the customer, the customer is playing funny budgers [or in fact not budging] and Tesco is too big a customer to lose, could you perhaps suggest also switching the invoicing so that it matches the timing of the rebate? (And the timing of the payment of the rebate to that of payment of the invoices.)

I'm a tax bod, not a negotiator, but to me it's common sense that you don't pay a rebate before you've had the money to which it relates. Hence this suggestion - more to see if you can get the customer to see common sense (and back down), rather than something I think should (or indeed could) happen.

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Replying to Tax Dragon:
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By Hugo Fair
21st Jan 2022 12:21

IF it's Tesco, then they're not known for bothering to negotiate ('take it or leave it' being their maximum flexibility).

But I totally agree that you need the money in your sticky hands *before* making payments against the order (or indeed invoice).

One of my first decisions on joining a large software company many moons ago was to change the 'trigger' for sales' commissions from 'confirmed order' to 'receipt of payment'.

Finance complained on two counts - (a) some payments were made in stages and (b) the difficulty in paying salespeople who'd left in the meantime.
My responses ... (a) well now they've got an incentive not to be so free with offering delayed payment terms, and (b) change the terms so that commission rights die at the date employment ceases.
Some initial moans (and the odd departing sales guy - nearly all guys in those days) were followed by a sharp uptick in orders AND improved cashflow!

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