Ship-and-Debit rebates are off-invoice allowances used by electronic and technology original equipment manufacturers (OEMs) to protect channel distributor margins in case the distributor must sell at less than the original in-stock price. A rebate may be appropriate when the OEM reduces its product prices, as a response to changed market conditions, or when a distributor is required to lower the resale price to be competitive to make a large sale.
Smyyth Ship and Debit audit technology and processes enable us to expertly investigate and validate these allowances against the Ship and Debit agreement to prevent inaccurate payments. Records reviewed include EDI, XML transactions, SKU price variances, product returns, price protection, in-field transfers, rebates, short shipments, drop-shipments, stock rotations, sell-ins, sell-through, and impact of other rebate and allowance programs.
Prevent abuse and errors
Prevent and recover erroneous payments
Avoid profit leakage
Fast startup with no learning curve
Success fees make us partners in the project
The distributor initiates a Ship and Debit claim for the difference in pricing, which is an off-invoice discount-rebate to reduce the cost to the distributor. The OEM must validate the claim by verifying distributor sales and inventory documentation against the OEM sales records and program requirements. A careful audit is needed because of the potential for error or abuse. For example, the distributor inventory must be proved to have been purchased directly from the OEM and not from third-party diverters at lower than OEM pricing and then claimed under a Ship and Debit program.
- The manufacturer sells a product to a stocking distributor for $75 each and implements a Ship and Debit program, perhaps also directly to a specific end-customer.
- The distributor competes for a 500 unit customer contract but has to lower the price to $70 to gain the sale.
- The distributor would be out 500X$5.00 or $2,500 plus loss of margin, which it then claims under the Ship and Debit program.
- The manufacturer (in theory) audits the claim and, if correct, then reimburses the distributor for the loss.
Why an Audit is Required
A careful claims validation is needed because of the potential for error or abuse. In complex business environments, an OEM may have multiple volume, mix, and sales rebate programs, plus perhaps directly with a distributor’s end-customer, if not careful, the OEM may end up paying Ship and Debit claims on top of the other allowances already given. In another example, the product has to be proven to be purchased directly from the OEM, as the product could also be obtained from third-party diverters at lower than OEM prices, and then incorrectly claimed under a Ship and Debit program.