Periodic Rebate Agreements

From this Maintenance, the user will be able to set up any Periodic Rebate Agreement the company has signed with a specific Vendor.

A Periodic Rebate will be given by a vendor every time the Company will buy from this vendor a specific item or any item included in a Category specified by the agreement. The rebate will be cumulated and paid by the vendor on the periodic basis specified in the original agreement (each Month, Quarter, Semester, etc.).

Unlike the Volume Rebate Agreements, the Periodic Rebate Agreement will be independent from the volume of purchases. These kind of agreements will be signed between two parties to build customer loyalty.

Once a Periodic Rebate Agreement is set up by the user in the following Maintenance, the rebate will not show on the face of the invoice. However, the system will calculate and estimate the rebate to be received based on everything that was set up, and an automated journal entry will be record. The user will also be able to run a report that will display the estimated Periodic Rebate earned for each vendor.

The journal entry will be generate by the system only once the item is received in the Receiving Slips Entry. The system will generate a journal entry and post it to the General Ledger accounts set up in the GL Reference Menu.

If any modifications are made to an existing Periodic Rebate Agreement - all changes are saved and can be visualize on the History tab of the Maintenance. This tab will show the user the whole list of changes, which field was changed, and the change was made by which user on what date/time. Therefore, it is easy to keep track of any changes done on a Periodic Rebate Agreement.

Creation of a Periodic Rebate Agreement

The first step to generate a new Periodic Rebate Agreement will be to select the Vendor. Then the user will need to define the type of agreement:

          Regular: When selected, this means that the Company has a regular agreement with his vendor, and all items ordered attached to a Periodic Agreement will be ship to the Store as any regular           order. Usually when a regular agreement is signed between both parties, the rebates will be higher;

          Direct: When selected, this means that the Company has a special agreement with his vendor, and all items ordered attached to a Periodic Agreement will be ship directly on site. When a                     direct agreement is signed between both parties in general the rebates will be lower because the vendor will have additional fees.

The Periodic Rebate Agreement can be created by Group of items, or for a specific product depending on the type of Agreement signed.

i.e : Company X has a Periodic Rebate Agreement with his vendor Y for any Gypsum products. Every time the Company ordered Gypsum from this vendor, the Company will receive a periodic rebate of 2%. However, if the Company order specifically a Gypsum 1/2 X 4 X 12 from this vendor, the periodic rebate applied on this product will be 2.5%.

To set up a Periodic Agreement for a Group of Product - the user will need to do the set up in the first part of the Maintenance:

To set up a Periodic Agreement for a specific Product - the user will need to do the set up in the second part of the Maintenance:

During the calculation of the Periodic Rebate, the system will always take in consideration the most precise level in term of Product Category. Therefore, if a Periodic Rebate is set up for a specific item - the system will look at the Rebate set up on this item first while calculating the rebate applicable, even if the item is included in a Periodic Rebate for a Group of Products.

If a Periodic Rebate is set up as well on different level of Group Item - the system will consider first the rebate set up for a CAT 4, then CAT 3, CAT 2 and finally CAT 1.

Setting up a Periodic Rebate for a Group of Product

To add a new Periodic Agreement for a Group of Product, the user need to press the Add Bottom of the first part of the Maintenance.

Cat 1 to 4: From these fields, the user will define all category of items that are eligible to the Periodic Rebate. The 4 levels of Categories are defined as follow:

                    Category 1: Major;

                    Category 2: Intermediate;

                    Category 3: Minor;

                    Category 4: Double Minor.

As explained above, the Periodic Rebate will always be applied first to the most precise category (CAT 4), to the most global category (CAT 1).

By pressing F2 with the cursor positioned on One of the category - the system will default the Periodic Rebate applicable to all Category created in the system.

To learn more about the definition of these 4 levels of Group Items, please refer to the Inventory Maintenance.

Start Date: This date should match with the Starting date of the Periodic Rebate Agreement. The system will start to calculate a Periodic Rebate on any Item purchase and receive included in the agreement as of this date.

End Date: This date should match as well with the Ending date of the Periodic Rebate Agreement. The system will calculate a Periodic Rebate on any item purchase and receive included in the agreement until the date specified over here. Therefore, if the Agreement is amended and extended, it is really important that the user updates the information from this screen.

Rebate 1 - 2 - 3 - 4: The system allows you to add up to 4 Rebates. The user most enter the percentage (%) of rebate as per the agreement. The system will look to the percentage entered in these field when it will calculate the Periodic Rebate on each transaction.

The user can decide how to manage the rebate, but the best practises in the business are to enter the rebates as follow:

•          Rebate 1: Monthly Rebate;

•          Rebate 2: Quarterly Rebate;

•Rebate 3: Semestrial Rebate;

•Rebate 4: Other Rebate.

M: Under that field, the user specified how the Periodic Rebate will be payable by the vendor. The options are defined as follow:

•          SC: If selected - the Agreement specified that the Periodic Rebate will be pay back by the vendor with a Cheque;

•NC: If selected - the Agreement specified that the vendor will send a credit note to the Company to pay the cumulated Periodic Rebate;

•CD: If selected - the Agreement specified that the Company should automatically deducted the amount of the cumulated Periodic Rebate on the next payment. This one is rarely used since the Company does not need to wait for any consent from the vendor.

Deg: Can be selected only if the agreement included more than one level of rebates. If selected, the system will calculate the overall rebates entered under the Reb 1 to Reb 4 fields on a degressive basis. If this option is not selected, and the agreement included more than one level of rebates, the Periodic Rebate will be a summed of all level of rebates.

i.e: In the example above, there are 4 levels of Periodic Rebates: 1) 2%; 2) 1.5%; 3) 1%; 4) 0.5%.

If the Degressive options is selected, the system will calculate the periodic rebate following this equation: (1 x 0.02) + ((1 - 0.02) x 0.015) + ((1 - 0.02 - 0.015) x 0.01) + (1 - 0.02 - 0.015 - 0.01) x 0.005).

The overall Periodic Rebates will be 4.913%.

On the opposite side, if the Degressive option is not selected, the system will calculate the periodic rebate using the following equation: 0.02 + 0.015 + 0.01 + 0.005.

The overall Periodic Rebates will be higher and equals 5 %.

Result: The field will populate automatically by the System and should represent the total Periodic Rebate per agreement based on all Rebate entered under the fields Rebate 1 to 4. The result will also be influenced if the Degressive option is selected or not.

Product %: This field gives the option to apply the Periodic Rebate to the cost of the Product. The user is allow to apply the whole rebate, a part of the rebate, or to not apply anything at all.

Depending on the situation, the system will react differently:

•Applying 100% of the Rebates to the cost of the Product: The system will generate a journal entry and post the Periodic Rebates as receivable from the vendor, and the offset will be post as a diminution of the Inventory cost;

•Applying partially the Rebates to the cost of the Product: The system will generate a journal entry, Post the Periodic Rebates as receivable from the vendor, a part of the offset will be post as a diminution of the Inventory cost, and the remaining part will be post as a gain in the Profit or Loss (i.e Rebates earned);

•Not applying the Rebates to the cost of the Product: The system will generate a journal entry, Post the Periodic Rebates as receivable from the vendor, and the offset will be completely post as a gain in the Profit or Loss (i.e Rebates earned).

This should be an internal decision taken by the user.

If the user apply 100% or a portion of the rebates against the cost of the product, the customer will partially benefit from this decision, especially if the retail price is calculated from the cost of the product. Since this reduce the cost of the product, the retail price will be impacted as well.

Setting up a Periodic Rebate for a Specific Product

To add a new Periodic Agreement for a Specific Product, the user need to press the Add Bottom of the second part of the Maintenance.

Product: From this field, the user will select from the item that is eligible to a Periodic Rebates. By pressing F1 with the cursor positioned in this field, the system will open the Search Window of the Inventory Maintenance.

The other settings of a Periodic Rebate for a Specific Product done exactly the same way as Setting up a Periodic Rebate for a Group of Product. The only difference is where the Periodic Rebate needs to be set up in this maintenance. Please refer to the section above for more detail regarding each individual field of this Maintenance.

Set up in the Vendor Maintenance

From the vendor Maintenance - the user is able to customize how the Periodic Rebate Agreements as well as the Volume Rebate Agreement will be calculate.

From the left side of the Main tab in the Vendor Maintenance - the user will see the following options:

As per the vendor Agreement - the use will have the ability to calculate each individual rebate in 4 different ways. To understand the impact of each individual option, we will use the following example:

          Company X has an invoice payable to vendor Y. The total of the invoice payable is 100$. Company X has the following agreement with his vendor Y:

                    - Discount Agreement of 10%;

                    - Periodic Rebate Agreement of 5%;

                    - Volume Rebate Agreement of 3%.

1) If none of these boxes are check by the user, all rebates mentioned above will calculate at 100%. Therefore, Company X will have a total of 18% Rebates. When these boxes are not check, the user will gain his rebates to the maximum level;

2) If the user selects Degressive Periodical Rebate, without selecting Degressive Volume Rebate, the Rebates will be calculated as follow:

                    - The Periodic Rebate Agreement will be calculated net from the Discount Agreement. Therefore, following the example above, the Periodic rebate will be 4.50$ {(Total Invoice (-) (Total                     Invoice * Discount Agreement)) * Periodic Rebate Agreement} or {(100 $ (-) (100 $ * 10%)) * 5%} = 4.50$.

                    - The Volume Rebate Agreement will be calculated regardless of the Periodic Rebate Agreement already calculated degressively. Therefore, the total of the Volume Rebate should be                     2.70$ which is calculated as follow: {(Total Invoice (-) (Total Invoice * Discount Agreement)) * Volume Rebate Agreement} r {(100$ (-) (100$ * 10%) * 3%)} = 2.70$.

3) If the user does not select Degressive Periodical Rebate, but select the Degressive Volume Rebate, the Rebates will be calculated as follow:

                    - The Periodic Rebate Agreement will be calculate regardless of the Discount Agreement. Therefore, following the example above, the Periodic Rebate will be 5$ because it will not be 

                    calculated  net from the Discount Agreement. The Periodic Rebate Agreement will be calculated as follow: Total Invoice * Periodic Rebate Agreement or 100$ * 5% = 5$.

                    - The Volume Rebate Agreement will be calculated net from the Periodic Rebate Agreement. Therefore, following the example above, since the Periodic Rebate was calculated                               regardless of the Discount Rebate, the Volume Rebate should be 2.85$ {(Total Invoice - Total Periodic Rebate Agreement) * Volume Rebate Agreement)} or {(100$ - 5$) * 3%} = 2.85$.

4) If the user select both options at the same time (Degressive Periodical Rebate and Degressive Volume Rebate are checked from the Main Tab) - each level of rebate will be calculated as follow:

                    - The Periodic Rebate Agreement will be calculated net from the Discount Agreement. Therefore, following the example above, the Periodic rebate will be 4.50$ {(Total Invoice (-) (Total                     Invoice * Discount Agreement)) * Periodic Rebate Agreement} or {(100 $ (-) (100 $ * 10%)) * 5%} = 4.50$.

                    - The Volume Rebate Agreement will be calculated net from the Discount Agreement and net from the Periodic Rebate Agreement as well. Therefore, following the example above, the                     Volume rebate will be 2.865$ {(Total Invoice (-) (Total Invoice (-) ((Total Invoice* Discount Agreement) * Periodic Rebate Agreement))) * Volume Rebate)} or {(100 $ (-) (100 $ (-) ((100$                     * 10%)) * 5%) * 3%} = 2.865$.

With both Degressive options checked - the rebates will be gain to the lowest level.

As explained above, whenever there is a Periodic Rebate Agreement and a Volume Rebate Agreement signed with the same vendor - the system will always apply and calculate the Periodic Rebate Agreement first then the Volume Rebate Agreement based on everything that was set up in their respective Maintenance and in the Vendor Maintenance as well.