REBATES

Rebates functionality in SAP uses the concept of condition technique as is used in

Pricing (but with rebate specific features), which is explained below:

Let’s see how rebates work in SAP first.

 Glen wants to give customer a 3% discount on everything he or she buys

(condition type ZB03).
 In addition, Glen provides another 1% discount if the customer reaches a
certain amount of gross sales for the year which (turnover discount), for a
specific group of products (ZB01).

After all these rebates are set up, the rebate conditions will apply on applicable
invoices as accruals instead of off-invoice discounts. The rebate agreement tracks the
applied amounts, which can be reviewed at anytime in the rebate agreement. Once
pay out of any rebate amount to the customer is decided, there will be a rebate
settlement represented by a credit memo request. This reverses accrued amounts
and pays the actual amount to the customer either in form of a check or a credit
memo.

Rebate process in SAP is separated into three components:

1) Configuring Rebates

2) Setting up the Rebate Agreements

3) Managing Rebate Agreements and Payments

1) Configuring Rebates

Prerequisites

1. The Payer partner needs to have the “Rebate” field checked in the Customer
master on the Sales Area>Billing Document tab.

2. The billing type must be marked as relevant for rebates (IMG Sales and
Distribution>Billing>Rebate processing>Activate Rebate Processing>Select
billing documents for rebate processing).

3. The sales organization must be marked as relevant for rebates (IMG Sales and
Distribution>Billing>Rebate processing>Activate Rebate Processing>Activate
rebate processing for sales organizations).

The system will issue respective messages when you are trying to process any
rebate-related transactions with any of these settings missing.
Condition Technique for Rebates

To create rebate-related access sequences

IMG path Sales and DistributionBillingRebate processingCondition technique for

rebate processing>Maintain access sequences.

Access Sequence for Rebates

Condition Tables in a Rebate Access Sequence
Rebate-related condition types are identified by condition class “C” (Expense
Reimbursement). When you create a new rebate condition type (IMG path Sales and
Distribution>Billing>Rebate processing>Condition technique for rebate
processing>Define condition types) and you change the class to “C

If the “Rebate proc.” field is blank, accruals will be posted on each applicable invoice.
Entering an “A” will prevent the automatic generation of accruals on invoices. The
latter would make sense if you don’t base your rebate payment on actual sales, but
on the specific performance of the customer (such as a display in a store or an
advertisement in the paper). These rebates would be paid out as a lump sum and
would require the creation of a manual accrual. For example, you want to give the
customer a $5000 rebate if he displays your product at the entrance of his store. You
then would create a one-time manual accrual of $5000. Once you have proof of
compliance by the customer, you can create a lump sum payment in that amount,
which would reverse the accrual and pay the amount to the customer.

With the “Provision con.” Field, you determine if you want to reverse your accruals at
time of partial payment (we will cover payments later in that paper). Leaving this
field blank will reverse the accrual; a value of “A” will not reverse it.

Rebate Condition Type Definition

Now that we defined our rebate conditions, we can add them to our regular pricing
procedure (IMG path Sales and Distribution>Billing-Rebate processing>Condition
technique for rebate processing>Maintain Pricing Procedures. Alternate condition
type “AltCTy” and Alternate condition base value “AltCBV” will not let you do any
manipulations on how the rebate is calculated. Also, you will not be able to do any
manual changes to rebate conditions. The requirement “24” in column “Reqt”
prevents the rebate condition from displaying on any document type but the invoice.
Simply take this requirement off if you want to have visibility of rebates at order entry
time as well.

A very important setting for the rebate conditions in the pricing procedure is the
account keys. At Invoice creation, accruals are being created that post to accounting,
to give you visibility on how much you owe your customers. The posting of this
accrual is done by accounts assigned to the account key in column ‘Accrls’ (Accruals);
usually a sales deduction and an accrual account. The settlement document (in form
of a credit memo) uses the accounts assigned to the account key in column ‘ActKy’
(Account key), which reverse the accrued amounts and credits the customer.

It is also imperative that any sub-total line a rebate condition refers to needs to be
stored in one of the seven available sub-total fields (KZWI1-KZWI6 and BONBA in
column “SubTo”). If you are using multiple pricing procedures, you want to keep the
sub-total designations common (i.e., 1 for gross price, 2 for net price).

Rebate Conditions in a Pricing Procedure

Configuring the Rebate Agreement

To maintain rebate agreement types, use IMG path Sales and

Distribution>Billing>Rebate processing>Rebate agreements>Define Agreement
types. Select “New Entries” to create a new agreement type.

Default values
The first section (Default values) serves to define the defaults that apply for every
rebate agreement of that type. You can define the default start and end date of the
agreement. The default start date is important in regards to whether or not you want
to allow retroactive rebates. For example, if you set the start date of a rebate
agreement to today’s date, all invoices from that moment on are eligible for the
rebate and will apply on the invoice itself. However, if your default is the beginning of
the current year, the system will calculate rebates for all invoices in the past, from
that date on, even if they did not apply on the invoice. These rebates are called
retroactive.

The other default in this section allows you to set a payment method, which is freely
definable to suit your individual situation. Every rebate settlement will create a credit
memo request in SAP; however, if you set your default to “C” for check, it will carry
this flag forward to FI, to later let you cut a check. Of course, all of these defaults can
be overwritten during creation of the actual rebate agreement.

Control data
The “Condition type group” is linked to the rebate agreement type in a different
configuration transaction, which we will get into a little bit later. This condition type
group defines which rebate condition types are allowed for the rebate agreement
type.
The “Verification levels” field is also a default that defines the level of detail you see
when you review the applied invoices within a rebate agreement. You can change this
default while reviewing the verification level in the rebate agreement.
The “Different val. period” option lets you define whether or not the rebate condition
records you create out of the rebate agreement can have validity dates outside of the
ones of the agreement. I suggest you leave this field unchecked.
If you want to allow manual accruals (we will get into what these are for), you need to
indicate this and define the respective order type. “B4” is the standard SAP order
type for manual rebate accruals.
You are able to create the same rebate agreement automatically in regular intervals
with the same data (but different validity dates). To turn on this feature, utilize the
“Arrangement calendar” field to do that. You can add a standard SAP calendar, or
your own defined one, to schedule the automatic creation of rebate agreements. In a
separate step, schedule job RV15C005, which can also be accessed via transaction
“VB(D” (yes, that’s the left parenthesis in the transaction code), to automatically
extend your agreements.
Manual payment
The “Manual payment” section of the rebate agreement defines how much can be
paid out during a partial settlement. You would use partial settlements if, for
example, the rebate agreement is defined for a full year, but the payouts are
supposed to happen on a monthly, quarterly, or any custom defined schedule.
You can choose whether you want to allow partial settlements only in the amount of
what you accrued so far. This is a good idea if you don’t want to pay out more than
what the customer is entitled to. However, you can also allow any payment amount,
if you choose so. As with manual accruals, you need to define the partial settlement
order type, which is “B3” in the standard SAP system. If you don’t want to wait to
reverse your accruals until the final settlement, you can do so for the partial
settlement by checking the “Reverse accruals” box.
Just as with agreements, you can also schedule regular payments by entering the
appropriate calendar in the “Settlement periods” field. Use program RV15C001
(accessible through transaction “VB(7”) to schedule your payment runs. This will
create automatic payments according to the defined schedule.
The reversal of the accruals is independent from the payment amount of the final
settlement. For example, if you accrued $10,000 over a given period, but the
customer did not reach their sales goal, you might want to pay only half that amount
or nothing at all. No matter what the payment amount is going to be, the total
remaining accrued amount for the agreement is reversed.
Settlement
The “Settlement” section defines the final settlement order type (“B1” in standard
SAP) and the minimum status that needs to be set in the agreement before it can
finally be settled. This will become more clear when we cover the actual settlement
of a rebate agreement later in this paper.

The standard correction order type “B2” is needed if the statistical and actual accrual
amounts are getting out of sync. This is mostly the case for retroactive rebates.

Definition of a Rebate Agreement

Condition Type Groups
I mentioned the assigned condition type group in the definition of the rebate
agreement. With IMG menu path Sales and Distribution>Billing>Rebate
processing>Rebate agreements>Condition type groups>Define condition type
groups, you can freely define your rebate condition type group (see Figure 6). Make
sure that you leave the “Cat.” (Category) field blank. This defines the Condition Type
Group as relevant for rebates. Sales deals share this configuration transaction and
would be identified with a category of “A”.

Definition of Condition Type Groups

Assigning Condition Types to Condition Type Groups

In this configuration step (IMG Sales and Distribution>Billing>Rebate
processing>Rebate agreements>Condition type groups>Assign Condition
Types/Tables To Condition Type Groups), you define which condition tables, of which
rebate condition types, you allow for a specific Condition Type Group, and in which
order they appear in the rebate agreement (see Figure 7). Since the standard SAP
rebate functionality does not allow exclusions in the access sequence, the order of
condition tables can be freely defined here. You can assign multiple condition types
that can have different access sequences.
Assigning Rebate Conditions to Condition Type Groups

Assignment of Condition Type Groups to Rebate Agreement Types

Finally, we are able to link the Condition Type Group to the Rebate Agreement Type
through the IMG menu path Sales and Distributions>Billing>Rebate
Processing>Rebate Agreements>Condition Type Groups>Assign Condition Type
Groups to Rebate Agreement Types

Assignment of Condition Type Groups to Rebate Agreement Types

2) Setting up Rebate Agreements

The rebate agreement is the central point for processing rebates. Here are the
main tasks that can be done out of this transaction:

 Define the payment method and validity of the rebate agreement.

 Define the condition records with rates and scales for which rebates should
apply. NOTE: You cannot create rebate condition records with the regular
pricing transaction VK11 or VK31. (This is due to the condition class of “C” as
indicated in the section above about condition types.)

 Review all applied invoices to a specific rebate agreement.

 See which payments were already made and how much you accrued.

Generate partial and final settlements, as well as manual accruals. NOTE: If you
attempt to create any rebate credit memo manually with VA01, you will get an
error. The reason for this is the same as the one for the condition types. In order
to track all payments within the rebate agreement, they have to originate from
that rebate agreement.

To create a rebate agreement execute transaction VBO1

On the next screen (Figure 10), enter the description of the rebate, the rebate
recipient, the currency in which the rebate payments are going to be made, the
payment method, and the validity period of the agreement. Here are some comments
to the individual fields:

The rebate recipient has to be a payer partner. You also need to make sure that the
payer partner type that you are using (“RG” in standard SAP) is linked to the account
group you are using for the sold-to (“0001” in standard SAP). As we can see later, the
rebate recipient becomes the sold-to in the rebate settlement credit memos.

The payment method defaults from the rebate agreement type configuration setting
and can be overwritten here. The same applies to the validity period. Originally the
valid from date is defaulted to today’s date (as set in the agreement type). Since our
sales department was (as usual) late to give us the agreement information, we need
to back-date the start date to the first of the year. We assume that the rebate
agreement is valid for the whole calendar year, but if you want to do it by fiscal year,
just adjust the dates to your liking. Once all this data is entered, click on the
‘Conditions’ button to create rebate condition records.

Rebate Agreement Overview Screen

You can see that the validity period for the condition record defaults from the validity
period of the rebate agreement. As we defined in the agreement type, an attempt to
change the validity period (to one outside the agreement validity period) would result
in an error. However, you can change the validity period to one within the range of
the agreement period. For example, if you set up the agreement for the whole year
and you pay out on a monthly basis with different amounts, it makes sense to create
multiple condition records with monthly validity dates.
If you enter a rate in Figure 12 and hit Enter, the same amount applies in the
“Accruals” column. It is important to remember, that the rate represents what you are
going to pay to the customer, and the accrual is what you accrue over time on
invoices. This becomes very clear when you are using scales. Although you are able
to maintain different rates based on different scale levels of sales achievements, you
can only maintain one accrual rate.
The accrual rate applies on each invoice, at which time you don’t know if a customer
will reach the next scale level over the time of the agreement. You might want to
maintain an average accrual rate (for example, if you have scale rates of 1, 2, and
3%, your accrual rate might be the median of 2%). However, based on your
accounting guidelines, you also might either over- or under-accrue.
You also have the choice not to accrue at all (for example, for a lump sum payment)
and can take out the accrual rate entry. However, if you are trying to create partial
settlements and configured the agreement to not allow higher payments than what
you accrued, you will have to create manual accruals in order to do so.
Rebate Pricing Record Rates

Select the condition record and click on the “Details” button.

At the bottom of the “Control Data” section of the details screen (see Figure 13), you
can see that the condition record was created retroactively. This means that not only
will invoice line items apply from this day forward, but also the ones that were
created from the valid from-date of the condition record, until today’s date.

Since a rebate settlement in SAP is reflected as a credit memo request, a material

number is needed to generate the credit. The material for this credit memo is stored
in field “Matl. f. settl.” (Material for settlement). Since the key combination we choose
is by customer, we need to define a material of our choosing. For most of my clients,
this always causes an issue with reporting, since the materials that are actually being
accrued on cannot be easily tied to the material of the settlement. You will always
have to choose a material if the material number is not part of your condition table.
In the latter case, the material number defaults as the settlement material.

If you like to create more condition records, use the green back-arrow to go to the
“Valid Condition Types and Key Combinations” screen (see Figure 11). However, if you
are done with all your rebate pricing maintenance, you can now save the rebate
agreement. At this point, I would like to give some insight on the number of condition
records you create per rebate agreement. Although we allowed three different
condition types to be maintained within agreement type “ZSRB”, it does not mean
that we have to maintain it in one and the same agreement. It makes sense to
distinguish multiple rebate agreements based on the type of rebate you want to give.
For our example we will create three separate rebate agreements: One for all the
items a customer purchases throughout the duration of the rebate, a second can be
created for the performance based (scale). and a third agreement for the material
promotion.

This way, if you want to see the status of one of your rebate programs, you can look
at it without having to dissect other rebate conditions. It also improves performance
since the system does not have to read every invoice line item every time.
Another common mistake I often see is that instead of creating new rebate
agreements (for example, yearly renewals), clients just extend the validity end date
of the agreement. The problem with that scenario is that when you want to look
online to see which invoice line items applied to the rebate, the system has to look
back at two or more years worth of data. Get your mocha latte while the program is
running. When you come back, you will realize that you timed out of the transaction.
Instead of increasing the validity period, it takes the same amount of time to create a
new rebate agreement with reference by clicking the button (see Figure 9). You can
also use the automated rebate agreement renewal transaction “VB(D”.

Rebate Condition Record Detail

Figure 14 shows you our condition record for condition type BO01 for which we
wanted to set a sales goal. The customer needs to buy $100,000 worth of Health
Foods (represented by Volume rebate group “01” of the material master) in order to
get an additional 1% rebate. We will always accrue 1% on all applicable invoices
since we don’t know at that time if the customer will reach that goal. Once we create
the final settlement, all applicable sales will be accumulated and compared with the
scale value. If the threshold is not met, nothing will be paid out, but all accrued
values will be reversed.
NOTE: The scale levels are always only applicable to the condition record they were
created for. You can’t comply with a request like: “If you buy $100,000 worth of item
A, B and C …,” if A, B and C are not in some kind of grouping.

Scale View of Rebate Condition Record

After we have created our rebate agreement, we can check an invoice that has rebate conditions applied.
The service rendered date (not the pricing date!) of the invoice line item is used to determine the validity of
a rebate condition record. All rebate conditions are line item conditions, so go to the “Conditions” tab of
one of your invoice line items.
You see in Figure 15 that two rebate conditions applied. BO02 for our material promotion with a $1.00/EA
allowance and the 3% of condition type BO03 for everything the customer buys. It is possible that the same
rebate condition type applies several times, unlike regular pricing conditions. You could for example have a
Headquarter rebate that pays 3% of all sales of a payer (BO03). In addition you have a rebate agreement
that pays an additional 1% for a specific sold-to customer (for example, a new store promotion). This is
also set up as a BO03 condition record. You would see both BO03 records, one with 3% and one with 1%.

Applied Rebate Conditions on an Invoice

Next, select one of the rebate condition types and click on the “Details” button.

You can see that, although not specified explicitly in the rebate condition type configuration, the rebate
condition is automatically an accrual. The rebate agreement number to which the condition record belongs
to is also shown in the rebates section of this screen (see Figure 16). It is also indicated if the condition is
retroactive or not.
3) Managing Rebate Agreements and Payments

Verification levels
After several invoices are created, we can access the rebate agreement either in
change (Transaction VBO2) or display mode (VBO3). To see which invoice line items
applied, select the “Verification level” button shown in Figure 10. Items that show
accruals of 0 are invoice line items that applied retroactively. Since the rebate
agreement did not exist when they were created, no accrual could be made. You can
drill down to an individual invoice by clicking the invoice number once. If you would
like to change the level of detail shown, select the button on the “Verification Level”
screen shown in Figure 17. Remember that we set the verification level in
customizing the agreement type to “Open”, meaning every line item shows. It might
make sense (if you have thousands of invoice line items and you would like to just
see totals by customer) to select verification level “D”. One annoying thing to note is
that the month displayed is always the calendar month, even if you set up your
condition records by your fiscal month. This can lead to misinterpretation of the data.
This issue was addressed with SAP, but the answer was that the system works as
designed and that there are no plans for an enhancement.
As mentioned above, it can happen that the system times out if you are trying to
review the verification level online (due to the large number of applicable invoice line
items). In this case, use transaction “VB(8”, which lets you run a verification report in
background
Creating Partial Settlements
As mentioned before, you can automate periodic creation of rebate payments. You
need to decide, based on the number of rebate agreements you have, and their
complexity, if this option makes sense. For example, it makes sense to schedule
regular payments for rebates where the customer gets a certain percentage for
everything he buys. However, rebates that check scales or need manual calculations
or adjustments should be handled manually. In this paper, I will explain how to create
manual settlements.

In order to create any kind of settlement, you need to be in change mode

(Transaction VBO2) of the rebate agreement. Clicking the ‘Pay’ “Create Manual
Rebate Payment” button will open the partial settlement screen as seen in Figure 18.
All condition records of this agreement are displayed (in our example just one). In the
“Max amount” field you see the accrued amount as of today, which, by our
configuration setting, is the maximum amount we are able to pay in a partial
settlement. If we would enter a higher amount, we would get an error. Enter the
amount you want to pay in the “Amt. to be paid” field. Note that the amount you
enter always defaults as a negative amount. Save your changes.
Partial Settlement Amount Screen

An information message is displayed that a partial rebate settlement was created.

NOTE: You cannot create a final settlement until all open settlement requests are
posted to accounting. The reason for that is the actual payments are updated in the
rebate agreement only at accounting time, to determine what is left to pay.

You can process the settlement request with transaction VA02. You need to release
the credit memo billing block before the request can be invoiced. Looking at the line
item pricing screen (see Figure 19), you see that only the rebate condition type
appears, although the same pricing procedure as the one on the invoice is used.
There are two entries. One is to actually credit the customer with the specified
amount, the other one to reverse the accrual. Since we configured the partial
settlement in the agreement type to always reverse the accrual (See Figure 5), the
amounts are always the same in a partial settlement. Save the credit memo request
and invoice it.
If you realize you made a mistake before you invoice the credit memo request, you
can delete the credit memo request with transaction VA02, which will increase the
available accrual amount in the rebate agreement again. In case you already
invoiced the settlement, you will need to cancel the credit memo. Since you then
cannot delete the credit memo request, you have to reject all the line items.
Pricing Screen of Partial Settlement Credit Memo

Going back to the rebate agreement itself, you can see which settlements were
already created for this agreement. Select Rebate Payments>Rebate Documents and
select the type of document you would like to see. Partial and full settlements can be
accessed separately. Since we only created a partial settlement so far, this is the only
option that is available. Click the check mark and you will see all (in our case just
one) partial settlements that were created for this rebate agreement. Figure 20 shows
the settlement amount (what was credited to the customer) and the reversed accrual
amount. If you would like to see the actual credit memo, click on the invoice number
(to select it) and the “Display” button. If you have a credit memo request that is not
invoiced yet, you will see the credit memo request number here. This helps if you try
to determine if you have any “open” settlement documents for this rebate
agreement.
Rebate Documents of a Rebate Agreement

Another view of payment data can be accessed from within the rebate condition
record. Go into the “BO03” condition record for your customer specific rebate and
select “Goto-Payment data”. This view (see Figure 21) shows you the total accrued
dollars, how many accrual dollars were reversed, and how much money was paid to
the customer already. In the lower section of the screen, it is indicated how much
accrued money is left to pay out. From here you can also initiate a partial settlement
by entering a payment amount in field “Amount to be paid”, just like we’ve done in
Figure 18. The same check (process) for maximum accrued value occurs here.

Payment Data for a Rebate Condition Record

Manual Accruals

As I mentioned before, sometimes manual accruals need to be made in order to increase the accrued
amounts for a given condition record. The most likely scenario is when you create a rebate agreement in the
middle of the year, but set it retroactively valid for the whole year. The system will take previous invoices
into consideration, but no accruals for these invoices are accounted for. If we want to make partial
settlements, we would not have accrued as much as we would like to pay out. So we need to increase the
accrual amount by creating a manual accrual. In order to know how much we need to accrue in addition,
click the “Sales volume” button on the Agreement Overview screen. The resulting screen (see Figure 22)
shows the actual eligible rebate amount (in our example $281.25) and the accrued amount ($102.48). We
need to create an accrual for the difference of $178.77.

This can be accomplished by clicking the button on the Agreement Overview screen. In the resulting screen
(see Figure 23), we can enter the accrual amount. A negative amount will increase the total accrual amount;
a positive amount will decrease it. Save the document and you will receive the message that a manual
accrual has been created. Invoice the credit memo request to post it to FI. Go back now to the rebate
agreement and check the sales volume. You will see that the accrual amount matches the eligible payout
amount.
Manual Accrual Payment Screen

Final Settlements
At the end of the rebate agreement, we finally can execute the final settlement to
close the agreement. As defined in the agreement type, we need to manually set the
“Agreement status” field on the Overview screen to “B” (Agreement release for
settlement). This is a manual check that prevents us from accidentally closing the
agreement. Then select the button from the Overview screen. We are using our first
rebate agreement, for which we did not create a manual accrual. Although we only
have $500 accrued, the final settlement shows what the customer is eligible for,
including retroactive amounts (see Figure 26). At this point in time, you could also
pay out more than this amount. Nothing will stop you from doing that, but I wonder
what Sarbanes-Oxley would say to that. Make your adjustments and save.
You could also have used the “Create final settlement” button from the rebate
agreement overview screen, which would have created a credit memo request right
away, without giving you the opportunity to manipulate the final payment amount.
After the credit memo request is created, the agreement status is set to “C”, which
prevents you from creating any further settlements out of this rebate agreement.
Final Settlement Payment Screen

The final settlement credit memo request uses the last day of the agreement validity
period as the billing date. You can create it manually or via the same batch job
(RV15C001) with which we can create periodic partial settlements.
Invoice the credit memo request. Looking at the pricing screen of the credit memo
(see Figure 27), you see that the payment amount is higher than the accrual amount,
since we can’t reverse more than what we accrued for. In a case in which we wouldn’t
pay out anything (for example if sales goals were not met), only the accrual amount
would be reversed in a final settlement. Once the credit memo is posted in FI, the
agreement status changes to “D”. This effectively closes the rebate agreement.
Pricing Screen of Final Settlement Credit Memo

After the final settlement is executed, no changes can be made to the rebate agreement anymore. It can be
reviewed in display mode only.