Everyday there are time bombs going off in your dealership that can cost you big bucks! These time bombs are called rebates, holdback amounts and other incentives. These types of items are the lifeblood of our sales efforts and, if not treated correctly, can drop your bottom line more than you think. BOOM right to the checkbook!
Dealerships live and breathe on manufacturers' incentives and rebates. They are the grease that gets the deal done, right? Rebates and incentives are hard enough to keep on top of when your dealership only sells one line, but things get really interesting when you have a multi-line dealership. The key to managing rebates and incentives is knowing what programs are going on and the accounting treatment of them.
Did we get paid on that rebate? Did we get all of our holdback? These are questions that every dealer should be asking on a regular basis. You do not know how many times I have worked on a dealer’s accounting only to find literally thousands of dollars sitting there, waiting to be paid or written off! Rebates and incentives need to be treated like cash. Think of rebates and incentives as direct dollars that indirectly end up in your checking account. They need to be tracked and reconciled monthly — just like cash.
In most dealer management systems, rebates, holdback amounts and related incentives are accrued for or are booked automatically as receivable when the deal is processed. These amounts should be treated as a “factory receivable” until you are reimbursed by your OEM. On your balance sheet, I strongly suggest to have these amounts separated out in their own account so that you can tell at a glance how much is “sitting out there” and waiting to turn into cash. By doing so you will have a tool to help you manage cash flow which is always a challenge.
Holdback and rebates amounts are what I call time bombs because they are very time sensitive. For the record, everyone makes mistakes — including the manufacturers. Reconciling each and every rebate and holdback amount helps us identify and correct errors. It provides us with a level of internal control that helps us accurately report how the sales department is doing.
For most OEMs, dealers receive reimbursement for holdbacks, rebates and incentives on their monthly parts statement. Yes, the monthly parts statements are often complicated, but they must be reconciled. For each rebate credit that we receive on the statement, it has to be matched up and taken out of our rebate receivable account. If you got extra, that is great! Just take the difference through cost of goods sold. However, if you didn’t get what you thought, or nothing at all, for a specific unit then the accounting department needs to follow up and find out why. It may require just a simple conversation with the sales manager, or it may require contacting your OEM. At the end of the day, we need to verify that we received what we have earned.
Here are some common issues that I have encountered in regards to rebates and incentives:
- There was no program for that unit: As I stated before, rebate programs can be complicated. Perhaps you booked a rebate for which there was no true program? The fix here is to write it off to cost of goods sold for that product line.
- We did not sales/warranty register the unit in time: I have seen where a unit or many units were not sales registered at the end of the month with the OEM. In this case, you will not get any holdback or rebates for these units. Here you have an internal problem that has to be addressed. By not registering your sales in a timely matter, you are flushing money down the drain! The fix here is having a strong internal control to ensure that all units are sales registered, which means you may have to work late on the last day of the month.
- Not paying off your unit in time: Sometimes you will not receive your rebate or holdback from your OEM because you did not pay the unit off in time. Your OEM’s internal systems are more sophisticated than you think and can detect late payment of your floorplan. The fix here is to make sure you understand the rules and pay accordingly.
- Double booking of rebates: I have seen where the accounting department is not doing its job correctly and just booking rebates to cost of goods sold when the employees see them on the parts statement. In this case, they are not relieving the receivable that already exists for those units, and therefore, you are double booking your rebates. The correction here is to verify the duplication and then write off the amounts sitting in accounts receivable to cost of goods sold. Yes, this will reduce your profit usually by big dollars.
- Rebate manipulation: I have, on occasion, seen where sales managers/salespeople double booked a rebate, inflated the true value of a rebate, or just made it up. Sales deals need to be audited by someone outside of the sales department before being classified as final. Someone needs to be doing this on every single deal! Errors and fraud can be easily detected if someone else besides the sales manager is breaking down and finalizing deals.
I'll say it again: Rebates and other incentives need to be treated just like cash. Their values can be material to having a profitable deal and a profitable dealership! I have seen too many times where someone eventually discovers thousands of dollars in unreconciled rebates that need to be written off for whatever reason. The financial impact can be devastating to both profitability as well as the amount of federal income taxes you have possibly overpaid!
Make sure you don’t bury your head in the sand and assume that rebates and incentives are being handled correctly. Investigate and verify a process is in place to make sure these rebates and incentives don’t blow up in your face! It's only good business.
Forrest Flinn, MBA, PHR, SMS has been in the motorcycle industry for more than 20 years and has been a true student and leader serving in various capacities. He previously worked as an implementation consultant for Lightspeed and as a general manager with P&L responsibility for a large metro multi-line dealership. Currently Forrest is the managing partner and chief visionary for a consulting firm that specializes in outsourced accounting, human resources, social media strategy, dealership operations consulting and Lightspeed/EVO training.
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