Why rebate management is a top priority for strategic CFOs
The role of the CFO is increasingly dynamic and strategic. Companies are recognizing that limiting the CFO to accounting is a tremendous waste of a valuable asset, as well as a detriment to the morale of the leadership team. The necessity of a strategic and engaged CFO is becoming more apparent all the time as companies navigate turbulent economic waters and manage interconnected supply chains.
This is where rebates come in. Just as companies are reassessing the CFO’s responsibilities, CFOs are reassessing the tools they need to do their jobs effectively. Rebates offer suppliers and customers a way to strengthen their relationships and generate revenue at a time when those relationships are key drivers of growth and CFOs are scrutinizing their balance sheets more closely.
But the way companies develop and implement rebates is many years out of date, which causes inefficiencies and limits the amount they can earn.
Existing ERP systems cannot cope with anything beyond vanilla rebate mechanisms that can't fully capturing the value rebate programs can generate. Trading partners need the ability to develop innovative rebate strategies that will meet their individual circumstances and drive revenue growth across the board.
CFOs will be integral to this process in the coming years, but they need the right resources to maximize the value of rebates.
Rebate management is a critical revenue driver
Trading partners are always searching for ways to make their relationships as healthy and profitable as possible. While discounts and other short-term financial inducements encourage companies to cooperate, the benefits derived from these arrangements are often modest and fleeting. Once a discount is paid, it is gone. There is no enduring value.
Rebates give trading partners powerful incentives to collaborate on a deeper level by facilitating creative deals and sales strategies that secure long-term, mutual growth.
However, the establishment of a rebate program isn’t enough on its own, as many companies have discovered in recent years. For example, while two-thirds of manufacturers offer annual rebate programs in an effort to drive long-term behavioral change, just 2 percent think their rebate strategy is very effective at achieving their goals.
One of the main reasons for the ineffectiveness of many rebate programs as they exist today is a lack of visibility into the processes and finances of rebate partners, as well as the absence of a shared platform for negotiating and managing rebates.
Rebates provide financial benefits at every link of the supply chain: they help suppliers increase volume, give customers better rates, allow companies to pursue more specific and profitable sales goals, and offer savings for retailers. To fully leverage rebates, companies should have a sophisticated understanding of the demand chain, their partner relationships, and which financial interventions will make the most sense for everyone.
This is where a strategic CFO using accurate data can make all the difference.
How the CFO can drive your rebate strategy
As CFOs become more central to the strategic planning process, their role in developing and maintaining a robust rebate program will continue to grow. According to a 2022 Deloitte survey, over two-thirds of CFOs say they should be “actively engaged in maximizing organic growth.”
When PwC surveyed executives across the C-suite about their roles in facilitating growth, less than half said they should be responsible for reevaluating pricing strategies – a proportion that jumped to 59 percent for CFOs.
One essential advantage of rebates over discounts, promotions, and other basic financial incentives is their versatility. Rebates have become more complex in recent years because strategic CFOs are looking for value in many places.
For example, if a high-volume sales strategy isn’t working, CFOs may want to emphasize the sale of higher-margin and lower-volume products. Unlike simple incentives, rebates allow companies to make fine adjustments to their sales mix by targeting specific products or incentivizing different volume orders.
There are many forms of rebate customization: trading partners can implement targeted rebates around volume, value, or growth; they can have different incentive targets within each rebate category; and they can focus on buying groups or individual companies.
Strategic CFOs carefully track the performance of their rebate programs and use this information to make forecasts and adjustments as needed. The CFO’s holistic view of the company’s financial situation illuminates potential risks and benefits of various rebate strategies. The ability to synthesize this information and identify value-generation opportunities (as well as risks) is what sets strategic CFOs apart.
Why rebate management is a top priority for CFOs
As rebates become more inventive and complicated, it’s increasingly important for companies to have an effective digital rebate management solution in place. Inefficient and outdated methods of rebate negotiation and management (such as spreadsheets, which many companies are still using) have become major liabilities that put companies at a severe competitive disadvantage.
This isn’t just because manual rebate management processes are slow and error-prone, which can lead to costly inefficiencies and disputes between suppliers and customers. It’s also because CFOs and rebate managers will have to forgo certain types of deals altogether if they don’t have the logistical infrastructure to support those deals.
CFOs can lead the shift to centralized digital rebate management solutions. A Gartner survey found that 82 percent of CFOs say their digital investments are accelerating, while an IBM survey reports that 40 percent of CFOs believe they’re tasked with building a culture which “embraces all things digital.”
These are testaments to the expanding role of the CFO. But even as CFOs become more engaged with rebate strategy and implementation, they will also remain responsible for keeping the company’s finances in order: getting cash flows correct, paid, and allocated on time; managing annual and quarterly provisions and accruals (which have become more complex with the growth of rebates); and maintaining a healthy balance sheet.
That said, the days of CFOs functioning only as accountants are long behind us. As well as keeping the books, CFOs will play an increasingly pivotal role in developing and implementing growth strategies, and rebates will be a core part of that process.
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