Customer rebates are a way to give an (additional) discount to the customer, based on transactions (invoices, credit notes and debit notes) performed over a specific period in the past. The exact discount depends on the agreement, reflected in the SAP system, negotiated with the customer.
The goal is to reward the customer for doing business with you and strengthening the long-term relationship. Most of the time, the customer discount increases the more they buy.
What makes the process special from a technical point of view is that the discount is not applied immediately, but the sales volume needs to be calculated and paid for at the end of the period. The system can create accruals to keep track of the value of the rebates, based on rules stored in the contract. At the end of the period the credit memo is created, and the accruals are settled. Within the contract or agreement with the customer, you can determine the conditions of the rebate. This means you can determine e.g. for which customers and materials the rebate applies and what the discount amount or percentage of the rebate is.
Let me clarify the process with an example. I negotiated a rebate with an important customer for this year, and I will grant an additional 5% discount if the customer buys products from material pricing group ZZ for a value of minimum 500.000 EUR. At the end of the year, the customer bought products from material pricing group ZZ for a value of 571.000 EUR and through the rebate process I will create the promised credit note of 5%.
The above scenario can be covered both in ECC and S/4HANA, but the tool is different. In ECC, it is covered with rebate agreements. In S/4HANA it is handled through condition contract management in settlement management.
What is the difference between rebate agreements in ECC and settlement management in S/4HANA?
With rebate agreements in ECC, you can only set up the rebates for customers. You can also work with rebates for vendors, but this needs to be done in a different SAP ECC feature, named condition contracts. Settlement management in S/4HANA is much more than only the replacement of customer rebate agreements, it also allows you to for example handle purchase rebates within the same feature. Plus, it also handles other scenario´s like commissions, pooled payment in financial settlement, etc. The customer rebate process as part of settlement management in S/4HANA is called condition contract management and works differently than in SAP ECC.
Technically, condition contract management in S/4HANA is a big improvement compared to rebate agreements in ECC. The main improvement is the removal of the VBOX table that was used to store the rebate relevant invoices and transactions. In S/4 HANA the calculation of the business volume (which are the rebate relevant transactions) is done on the fly. This makes this process better for performance, decreases data storage and decreases data locks.
The technical differences can be found in the below image, showing the removal of the VBOX table.
Before we dive into an example of a condition contract, let´s have a look at the high-level condition contract management process in S/4HANA:
It starts with the creation of the contract and releasing it. Then you proceed to perform business transactions relevant for rebates. The sequence is not that strict, because you can create a condition contract with a start date in the past. The system will consider past business transactions within the contract validity. Throughout the contract or at the end, you can perform the settlement. This means that the system will check the rules of the condition contract, check the relevant business transactions (which is the business volume), consider previous partial settlements and in the end, create a settlement document the correct amount to be credited to the customer.
An example of a customer rebate in settlement management
In the below example, we will show the process following our high-level overview drafted above. We start with the creation of the condition contract in S/4HANA. This can be done via transaction WCOCO. Here you determine for which customer the rebate is, the period for the rebate, the materials which are included, the
volume, the accrual material which will be used, etc. When this all is determined, the condition type, bonus accrual, should be added as well in this contract. This discount condition will also appear in the posted billing document.
We created a simple example where the discount % is dependent on the invoiced value in USD. Furthermore, we made 2 specific materials relevant for rebates for this customer.
When the condition contract contains all the required information, this contract needs to be saved and released. If the contract is not released, the contract is not active. The recommendation is that the contract should be made active before any invoice is created which is relevant for this contract. In S/4HANA, it is possible to include past invoices if the period of the rebates starts in the past as well.
Once the condition contract is settled, the normal processes can take place, such as creating sales orders, deliveries, billing documents, etc. Depending on the criteria of the condition contract, it will take into account the invoices which apply to these criteria.
The contract can be settled at different moments, if set up in the settlement calendar. This calendar contains the moments when a partial and a final settlement can take place. Only at the end of the period a final settlement can take place which takes into account all the previous partial settlements. Every contract should have a final settlement, partial settlements are not mandatory.
In our example, we included several partial settlements and a final settlement. During the example, we will show the process executed for the second settlement.
To run a settlement (partial or final), the transaction WB2R_SC is used. It is important to complete the settlement date (can be a period or a specific date), the condition contract number and the run type. Run type can be Check Run to verify if a settlement can be done for that date and Live Run to actually run the settlement and create a credit note.
In a check run, no credit note is created, only in the live run.
The live run indicates the number of the credit note and can be viewed from the condition contract.
In the settlement document, the value of the discount is calculated. The base for this discount can also be found and with transaction WB2R_BUSVOL, the amount for the discount can already be checked. If a partial settlement has been run, it indicates how much the discount is up to that point and can be communicated with the customer. Only the final settlement gives the total accrual amount of the whole period.
In our case, we created a second partial settlement. In this partial settlement, the materials for which sales transactions are created, are included in this settlement document. Here both materials of the condition contract are used and therefore included in this partial settlement.
Let´s have a look at the pricing of item 10. The total business volume since the beginning of the condition contract for this item is 700 USD. The total value of the rebate relevant goods sold is higher than 800 USD, and therefore we will apply a 15% discount on the business volume. During the previous partial settlement, a value of 60 USD was credited (a 10% discount on a business volume of 600 USD). That means that we will now credit the customer 45 USD for this item. The same logic applies to item 20.
Be aware that a customer can have multiple contracts based on the validity period, the materials and other criteria set in the contract.
Conclusion
A customer rebate agreement, in S/4HANA covered by condition contracts in settlement management, is a good alternative to traditional sales discounts (in each invoice). It offers benefits such as boosting sales or incentivizing long-term customer relationships. Since you can maintain your normal price for low volumes and give discounts for higher sales volumes, you can give decent discounts without potentially hurting your company and lower the risk. It also helps to estimate the expected sale of specific products to a customer over a specific period of time.
Condition contracts offer a flexible way to determine how and when the customer will be refunded for their sales transactions.
Interested in improving your rebate processes with S/4HANA Settlement Management? Contact us today to learn how we can support your business with this powerful solution!
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