BY FORREST FLINN
You think that managing rebates would be a simple and straight forward process, and mostly it is. Unfortunately, the rules for sales incentives or rebates change monthly, and if you are a multi-line dealership, the process of keeping on top of manufacture rebates can become very complicated very quickly. This month’s blog is intended to help you start thinking about the rebate/sales incentive process in your dealership. I will also try to offer some suggestions to help you avoid some costly adjustments that can blow up your dealership's bottom line.
In a lot of powersports dealerships, loading or booking a rebate occurs while structuring a sales deal on the showroom floor. In the zeal to get the deal done sometimes, sales management doesn't understand the incentive program or sometimes applies the right rebate program to the wrong unit. When you are a multi-line dealership trying to understand the ever-changing programs can be very challenging. For example, there may be a $500 rebate on unit ABC; however, the rebate was mistakenly applied to unit DEF. Then the deal makes its way to accounting where it is finalized, and the rebate becomes a receivable for further processing. The sales department gets paid on the error, and life is good for the team.
Now what happens to the rebate in the accounting department? Most rebates get paid monthly and are reimbursed to the dealership on the parts statement. Also, there may be a thirty-day lag between filing for a rebate and its related reimbursement. Regardless of the timing of rebate reimbursement, the accounting department may or may not follow up on any non-paid rebate claims promptly. In the real world, rebates may sit in accounts receivable for many months before someone notices that they have not been paid on certain items. Then the explosion occurs---old rebates have to be written off, which reduces income for the dealership!
How do we avoid these ticking timebombs?
To avoid these types of ticking timebombs requires discipline and management. Below are some suggestions to help you avoid rebate/incentive surprises and timebombs that can be detrimental to your sales department’s bottom line.
- Have a written policy on how and who manages rebates in your dealership. By having a written policy on how to properly manage rebates, you can avoid finger-pointing between the accounting department and the sales department.
- Slow your roll on the showroom floor. Many times the problem with rebates starts on the showroom floor. Perhaps an old program was entered on the sales deal, or maybe there was no rebate on the unit that was being sold. Slow down the sales process a bit and make sure the deal is being structured soundly. Also, I have seen payroll fraud being done by loading rebates or incentives that never existed, knowing that accounting doesn't follow up on rebates accurately. In any event, slowing down the process to make sure that valid rebates are loaded on the deal is key to preventing mistakes, whether intentional or not.
- Use your DMS as a tool to prevent rebate surprises. In your DMS, every manufacturer should have an accounts receivable set up for rebates. In modern terms, these receivable accounts are called "schedules" and should be printed out and analyzed monthly. Every item over thirty days old should require research and explanation. This should be a joint effort between the accounting department and sales management. By working together, the sales and accounting department can resolve rebate issues in real-time for both profitability and payroll accuracy.
- Should the sales department be responsible for mistakes and errors? The answer is yes. If an incentive was entered incorrectly, the sales department was paid on it accordingly. When material errors overstate income for the department, departmental chargebacks should be done. In most dealerships, Finance and Insurance chargebacks are common, and the same concept should be applied to your sales department.
- Yes, manufacturers make mistakes! I have encountered way too many times where the manufacturer is at fault by not paying a valid rebate claim. By managing your rebate schedules in real-time, you are increasing your odds of catching these types of mistakes. Beware with these types of errors—the manufacturer may stack the cards against you in getting these types of mistakes reimbursed. For example, if you catch an error that was made and the manufacturer was at fault, but you did not catch it until six months later, you may still be out of luck. Some manufacturers in my experience will only deal with errors, either at the dealership level or the manufacturer level, within ninety to one hundred and twenty days. In these types of cases, the manufacturer may make exceptions and pay the claim, but it is easier if you are dealing with a current rebate that has happened within the past sixty days.
- Accounting mistakes. Yes, accounting errors can be made when accounting for rebates. The mistake that I see mostly is booking a rebate to the cost of goods sold, reducing the cost of sales when they should have been taking the rebate off of the rebate schedule when processing the parts statement. In this example, the cost of sales was hit twice.
- What is in the factory receivable account on my balance sheet? This can be a scary question to ask, but it needs to be addressed and reconciled monthly. Ask your office manager or controller to provide you with details of this account. Either you will find only current outstanding rebates, which is excellent, or you could be possibly opening a Pandora's Box. Either way, you need to ask the question.
I understand that this was a lot to take in, but managing rebates in a modern powersports dealership is not only necessary but essential to bottom-line profit. Also, it needs to be built into the job descriptions of those involved. As an industry, we are working on skinny margins where the rebate was the thing that made a thin deal profitable. I see way too often where dealers have to write off thousands of dollars of rebates that were just not managed properly. Rebates and incentives need to be handled just like cash!
After all, it is only good business.
Forrest Flinn, MBA, PHR, SHRM-CP, SMS has been in the motorcycle industry for more than 23 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. Recently Forrest became an Associate Recruiter with Henry Lonski and Associates and is also the managing partner and chief visionary for a consulting firm that specializes in outsourced accounting, social media strategy, dealership operations consulting and Lightspeed/EVO training.