DESKTOP EDITION CLOUD EDITION SERVER EDITION GUIDES FORUM

How to post Commission (Rebate) on Sales invoice


#1

We are still in the process of getting our client system correct.

Our Client usually give their Customers Commission (rebate) based on the total purchases made at month end.

The rebate is not dependent on each invoice purchased but rather based on the cumulative Cases purchased (total invoices) at each month end.

The Commission is computed by graduating the total Cases (and equivalent total amount) purchased into percentage.
Example 500 to 1,000 - 5%
1001 to 2000 - 10%
Then if a customer purchase a total 505 Cases, which totals NGN328,750 with five invoices.
That is 200Cases @ NGN500 and 305 Cases @ NGN750.

The Commission is NGN16,437.50, which is 5% of NGN328,750.
The Rebate is normally computed with Excel spread sheet.

The Customer is allowed to order for total cases of choice sizes equivalent to NGN16,437.50.

Each customer places order at his will (at any future month).
The month of order is when the order will be delivered.

With the use of Manager, our client Management does not want to change its policy, which has been running for more than three years.

How will Manager treat Commission (Rebate) on Sales computed at month end.

How will it affect the following:
a. Finished Stock of products
b. How will Commission (rebate) affect Customers Account when:
i. Monthly rebate approval (provision) is granted at month end after computation
ii. The month the rebate is delivered to Customer

c. How and when will it impact on Sales expenses on Profit and Loss.

Thanks, await your assistance please.


#2
  1. At the end of each month, create a Sales Invoice Totals by Customer report. This will tell you each customer’s sales for the month.

  2. Enter a credit note for the appropriate percentage of the total for each customer. Do not assign the credit note to a specific invoice. Allocate the credit note to a Rebate account created for the purpose. This can be a contra income account or an expense account. Either way, it will reduce net income. The credit will be posted to the customer’s subaccount in Accounts receivable. There, it will be automatically applied to any open sales invoices in order of due dates or applied to the next sales invoice created for a customer.

  3. There will be no effect on inventory on hand.

  4. Any future order from the customer will be processed as usual. But if a rebate credit is available, it will be applied.

  5. There will be no impact on sales expenses. The cost of goods sold is figured independently of sales activity. It depends only on average cost of inventory items when they are sold via a sales invoice.

That is the simple approach. If you want to separate accounting for these rebates from the rest of the accounts receivable process, you must use special accounts. See this Guide: https://www.manager.io/guides/10342. It will be more work.


#3

Thanks Tut for your assistance to enable us use Manager properly.

Kindly confirm the following:
a. At the end of each month, create a Sales Invoice Totals by Customer report. This will tell you each customer’s sales for the month.

This is okay.

Enter a credit note for the appropriate percentage of the total for each customer. Do not assign the credit note to a specific invoice. Allocate the credit note to a Rebate account created for the purpose.

That is at Rebate approval stage using the credit note to:
DR: Expense amount
CR: Customer Account

There will be no effect on inventory on hand.

This is correct.

Any future order from the customer will be processed as usual. But if a rebate credit is available, it will be applied.

Treatment of Rebate Order / invoice, Manager will:
DR: Customer Account
CR: Inventory with average cost

Where the customer is given marketing aid as Loan to be deducted gradually from monthly approved rebate amount.
In that case, the rebate Order / invoice to the Customer will be net of the loan portion from approved rebate.

How will Manager handle it so that Rebate invoice plus loan refund to nill off the approved rebate for that month.


#4

A loan to a customer should be completely separate. Set it up as an asset. Possibly, you may want to use special accounts. (See https://www.manager.io/guides/10555.) When a rebate is calculated, use a journal entry to write down the loan by whatever portion of the rebate you desire. Debit Accounts receivable > Customer’s subaccount and credit the loan account. Apply the full amount of the rebate to the credit note as already discussed, still allocating it to the Rebates account.

What this accomplishes is to transfer some of the customer’s loan debt to Accounts receivable. There, it is cancelled by a portion of the rebate from the credit note, effectively transferring the customer’s loan payment to your Rebates account. Thus, you are gradually forgiving the loan as a marketing expense.

Notes: all this assumes the “loan” actually involved you giving money to the customer up front. If you didn’t give the customer money, it wasn’t a loan and none of this applies. You also need to consult a local accountant about whether the treatment outlined is legal under your tax laws. In other words, can you consider the loan forgiveness as an expense and, if so, what rules and restrictions apply.


#5

This topic is somehow related to me. But I am the one receiving the Rebate
How will a Customer who receive the from the Supplier as stated above treat or post the Rebated received.
In my case, I have created Income Account known as Purchase Rebate Received. The problem now is how do I debit the Supplier and credit the rebate account so the when I place my next order, it will processed against the rebate
Thank you


#6

If you are the recipient of a credit note from a supplier, for a rebate or anything else, you would enter it as a debit note. See https://www.manager.io/guides/7426.


#7

Thank you Tut and Momodu for your explaination.