Managing Co-Op Manufacturer Rebates
How to Manage Co-Op Funds and or Manufacturer’s Rebates
In the service industry, rebates are often available from equipment manufacturers to your customers. Many times, these are “cooperative” rebates which involve you, the service company who sells the equipment.
Take this common scenario for example: You sell an Acme brand furnace to one of your customers. This furnace comes with a $500 rebate. This rebate, however, is a “co-op” rebate where half of the funds are your responsibility, and half of the funds come from Acme in the form of a reimbursement check at the end of the month. Here’s the Total Office Manager “Preferred Way” to handle such a situation.
Step-By-Step Instructions for Managing Co-Op and Rebates
- Setup a new invoice item called “Discount – Rebate”. Set this invoice item type to “Discount”. On the General tab, describe the item something like, “Rebate Discount to Customer on Purchased Equipment” Leave the Amount field set at $0.00 and make sure the “$” radio button is set. On the Accounting tab, choose the appropriate COGS account to increase as you have it setup in your company. Some companies track this by using a cost of goods sold account like “COGS – Equipment”. Be sure to ask your CPA or accounting professional for advice.
- Setup a new invoice item called “Rebate Reimbursement”. Set this invoice item type to “Other Charge”. On the General tab, describe the item something like, “Manufacturer Rebate Reimbursement Due”. Leave the Amount field set at $0.00 and make sure the “$” radio button is set. On the Accounting tab, choose the appropriate income account as you have it setup in your company. Some companies track this by using an income account like “Manufacturer Rebates”. Be sure to ask your CPA or accounting professional for advice.
- Even though the equipment manufacturer is probably already setup as a vendor, setup the manufacturer as a customer also. For example, Acme Manufacturing would have both vendor and customer records in Total Office Manager.
- When you sell a piece of equipment which comes with a rebate, add the line item (invoice item) “Discount – Rebate” on the customer invoice and set the amount of the line item to the total amount of the rebate which the customer receives (in this case $500).
- Now create an invoice to the manufacturer for the portion of the rebate due to you from them. On this invoice to the manufacturer, you will “sell” them the invoice item (line item) called “Manufacturer Rebate Reimbursement Due”. In the amount field, enter the portion of the rebate for which the manufacturer is responsible; in this example $250.
- When the manufacturer sends you the Rebate Check, you will then Receive Payment for the manufacturer and apply this to the Invoice that you created for the “Manufacturer Rebate Reimbursement Due”.
By using this method, the cost you incur for your portion of the co-op rebate program gets attributed to your cost of goods sold (COGS), and the portion of the rebate which the manufacturer reimburses you accrues in their customer account as invoices which increase your accounts receivable (just like any other customer). The rebate check then reduces the customer account balance and your accounts receivable will decrease (just like any other customer payment).