Ship and Debit rebate programs help companies increase revenue, reduce standing inventory, and create long-lasting partnerships between Original Equipment Manufacturers (OEMs) and Distributors. In this article, Saravanan Krishnakumar, VP Rebate and Channel Management at Vendavo, discusses the Ship and Debit process, the benefits it offers when done correctly, challenges to watch out for, and top tips to make sure your team gets it right.
Distributors are asking for special prices. Manufacturers need to support these special prices while abiding to compliance standards, like ASC 606. This process is complex and requires careful tracking of sales, discounts, and rebates.
Rebate programs like Ship and Debit can be an effective way for manufacturers to incentivize their distributors and resellers to sell more of their products, while helping these partners gain a competitive edge. Ship and Debit programs offer many benefits and come with a few cautions. Make your process as smooth as possible with a few of our best practices. To start, let’s cover the basics.
What is Ship and Debit?
Ship and Debit is a rebate process used in B2B sales and is a discount from a manufacturer on the products the distributors sell after a sale is made. It is commonly used in high-tech industries to encourage distributors and resellers to sell more of a particular manufacturer’s products.
To do this, distributors will request the price at which they would like to purchase the product from the manufacturer. What gets tricky is that the manufacturer often cannot provide the product at the requested price until the distributor sells the product to end-customers. Once sold, the distributor can request the debit and manufacturers can approve the debit and claim the difference.
A Ship and Debit Example
Let’s say an OEM sells routers at $300 and has agreed to a $50 rebate for every router the distributor sells. The distributor will then pay the $300 up front for the routers to stock them, then debit the OEM $50 per unit once the items ship. This allows OEMs to create and move inventory and distributors to get the pricing they need for profitability.
There are many ways to process rebates and incentives. Ship and Debit is a reactive rebate strategy. It is driven by industry standards and compliance requirements related to rebates and incentives between manufacturers, distributors/resellers, and end-customers. It is important to understand how the process works to make sure your company is as efficient as possible.
What to Know About the Ship and Debit Process
Ship and Debit involves many steps. Understanding the order of events and how they come together is key to improving your company’s rebate processes. Here are the steps and a brief description of each:
Manufacturers and distributors (or resellers) negotiate the terms of the rebate program. This includes which products are eligible, at what percentage or dollar amount, and the duration of the program.
- Sales tracking
Distributors must track sales of the products agreed to during the rebate period. This includes the quantity sold, total sales, price at which the items were sold, and customer information.
- Claim submission
Once the contractual rebate period is over, the distributor submits a claim to the manufacturer as evidence of the eligible sales made during that time. This evidence may include invoices, sales reports, and other documentation.
Manufacturers then go through the evidence and verify that eligible products were sold and that the sales information is accurate.
The manufacturer then pays the rebate to the distributor or reseller. This payment can be in the form of credit against future purchases, a check or wire transfer, or another agreed-upon method.
- Rebate pass through
Distributors then sometimes pass the perks of that rebate on to their customers. There are multiple ways to do this, most commonly by reducing the sales price or providing a separate rebate to the customer.
When done well, the Ship and Debit process helps your organization nurture partnerships and provide numerous other benefits.
The Benefits of Efficient Ship and Debit Programs
There are perks to a well-crafted program. Several reasons why technology and high-tech companies use Ship and Debit rebates, some include:
- Increase sales
Rebates incentivize distributors to sell more of a particular manufacturer’s products, which boosts both sales volume and revenue.
- Improve market share
The process encourages distributors to sell more of an OEM’s products, which means manufacturers can improve their market share and compete more effectively with other companies in the industry.
- Increase cash flow
Ship and Debit rebates help manufacturers more effectively manage their cash flow by offering discounts after the sale is made rather than before.
- Increase loyalty
Manufacturers can improve their relationships with their distributors by providing rebates, which leads to increased loyalty and longer-term partnerships.
- Reduce inventory
Distributors can lower their inventory levels through the incentive to sell more of a particular manufacturer’s products, which can improve their cash flow and reduce carrying costs.
Ship and Debit is an effective way for manufacturers to incentivize their distributors and resellers to sell more of their products, while also allowing them to be more competitive in the market.
Common Challenges with Ship and Debit Rebates
This process is not without its challenges. Common issues to keep in mind, include:
- Administrative complexity
Ship and Debit requires careful tracking of sales, documentation, and communication between the manufacturer, distributor, and the end customer.
- Disputes and disagreements
The eligibility of sales, accuracy of rebate claims, and other aspects of the program sometimes come into question.
- Competitive pressures
Competition offers similar rebate programs or other incentives that make it challenging to stand out in the market.
- Customer confusion
End customers may not understand how the rebate works or who is responsible for providing the rebate, which can create headaches.
- Cost and ROI
Implementing and managing Ship and Debit rebates requires significant resources, time, and effort, so manufacturers need to understand the return on investment for such programs and manage more efficiently
Ship and Debit rebates can incentivize distributors, but they require careful planning, implementation, and management to be successful. Manufacturers must carefully consider the benefits and challenges of Ship and Debit rebates before implementing them in their sales strategies.
Ship and Debit Best Practices
If your company is looking to implement or improve a Ship and Debit rebates program, incorporating rebate optimization strategies is crucial to ensuring your process is successful.
- Establish clear policies and procedures
The best processes start with guidelines that keep everything running smoothly. Set clear parameters for your Ship and Debit program that outline time frames, rebate amounts, and other details. This minimizes confusion and helps your company create strong relationships.
- Use technology to streamline the process
Your company does not need to manually manage your Ship and Debit offering. There are robust technology solutions available automate your programs and make the process as streamlined and pain-free as possible.
- Regularly review and adjust the program
Every process in your company should be iterative, and a Ship and Debit rebates program is no different. Keeping every element up to date will ensure your process is working efficiently. Be flexible about evolution, institute regular reviews, and adjust as needed.
Another good thing to note is that you do not need to try to tackle every element of your Ship and Debit rebates program on your own. There are time-tested partners and solutions that can take a lot of the work off your plate for you.
How Vendavo Accelerates Your Ship and Debit Rebate Program
Rebate processes can be complex and involve tracking sales, documentation, communication, claims between manufacturers, distributors, and end customers, and payments. Vendavo can help you implement a system to efficiently and effectively execute on all your rebate needs.
Learn more about Vendavo Rebate & Channel Manager and how it can enhance your Ship and Debit practices.