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At Columbus, we have several clients who deal with customer rebates as part of their business. This is a real scenario I recently ran into with one of my customers:

“Currently we accrue rebates at the end of the month. We generate a sales report for a customer or a group of customers, with applicable items for the month, then calculate a rebate amount, and post a general journal entry. We credit some customers for a rebate amount, and we send an actual check to others. We want to know rebate accruals at any given moment and we’re hoping Dynamics 365 Finance and Operations (D365FO) can help us with that.”

After asking them a few clarifying questions, I got the full picture:

  1. Rebates should be accrued at the time of sale
  2. Rebate amounts are percentage based
  3. Only certain customers or group of customers apply
  4. All items are applicable (can be one item or a group of items)
  5. Only AP department can issue a check to a customer
  6. Only AR department can issue a credit note to a customer

Customer rebate processing can be different for each company, but I’m going to walk you through this example, which is the most common.

1. First, let’s start with reviewing the required setup:

Accounts receivable > setup > accounts receivable parameters > rebate program

  • If you want rebates created at sales order invoicing to be posted to the general ledger as accruals, set the “rebates at invoicing” to <yes>.
  • Create and select journal names for rebate accrual journal, AR consumption journal (type: daily, used for a credit note creation), and AP invoice journal (type: vendor invoice recording).

Rebates - 1

2. Next, enable price details to check rebate amounts when a sales order is created for applicable customers/items:

Accounts receivable > setup > accounts receivable parameters > prices

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3. If you’re planning on issuing a check payment for a rebate, link customer and vendor accounts on the customer master:

Accounts receivable > customers > all customers

  • Select a customer record
  • Specify a vendor account on the miscellaneous fast tab

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4. Next, set up a rebate programs with general ledger accounts for accrual:

Sales and marketing > customer rebates > rebate program type

  • Click “new” and enter a rebate program ID and description. Then select rebate program type “rebate”. This type of rebate is usually processed by sending a check to a customer or deducting the rebate amount from a customer’s invoice.
  • Select GL accounts for rebate accrual.

 Rebates - 4

5. Set up a rebate agreement, which the system will use as a filter to determine if a rebate should get calculated for a sales order:

Sales and marketing > customer rebates > rebate agreements

  • Click “new” and select a rebate program type
  • Select a customer account (group of customers or all customers can also be selected)
  • Select all items (group of items or an item)
  • Unit and unit type
  • Minimum quantity and minimum amount (if applicable)
  • Start date and expiry date
  • Payment type:
    • If you want to deduct a rebate amount from a customer account, and the customer account is the same as an invoice account, select the customer deductions payment type
    • If you want to deduct a rebate amount from a customer invoice account, and an invoice account differs from the customer account, select the invoice customer deductions payment type
    • If you want to issue an AP check for a rebate amount, select “pay using accounts payable”
  • Review values in the “cumulate sales by” field. If you keep the default value “invoice” combined with the AR parameter “rebate at invoicing” as <yes>, an automatic rebate accrual transaction will be posted every time an applicable sale order is invoiced
  • Price taken “gross” or “net”
  • Check if you require an approval of a rebate claim before rebate payment processing (This example doesn’t require approval.)
  • Select a value in the “rebate line break type” (the rebate amounts can be based on sales quantities or sales amounts)
  • Click “add line” in the lines section
  • Specify “from qty,” “to qty” (if applicable), “value,” and “amount type.” If required, rebate amounts can be set up in tiers
  • Click “save”
  • If you don’t require an approval of a rebate claim before processing a rebate payment, you must validate the rebate agreement. Click <validation>.

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6. Now the setup is over and it’s time to create and process a sales order:

Sales and marketing > sales orders > all sales orders

  • When a sales order is created, you can always check a rebate calculation for an item. Select a line, click “sales order line” > “price details”

Rebates - 6
 

Expand the “rebates” fast tab in the price details form and review a rebate amount for the item.

In this example, a sales order is created for Customer US-002; Item D0001; 100 ea; Price $480; Net amount $48,000.

The rebate agreement for this customer is 15% for all items: $48,000 X 15% = $7,200

 Rebates - 7In the first step, I indicated that rebates can be accrued at the time of sales order invoicing. D365FO - simultaneously with the sales order invoice - posts a general journal entry to GL accounts specified in “rebate program type” (step 4). To check the posting, navigate to general ledger > journal entries > general journals, switch the “show” parameter to “posted” and find the journal name defined in Step 1 for the rebate accrual journal. In this case it’s “RebAccrual”.

Here, the rebate expense account is debited, and rebate accrual account is credited. You can also run the Trial Balance report, filter for rebate expense and rebate accrual accounts, and check the postings there.

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When it’s time to convert a rebate claim(s) to a credit note for a customer, navigate to accounts receivable > customers > all customers, select a customer record, and click “collect” on the action pane. Next, click “settle transactions” and then “functions” > “rebate program.”

Rebates - 9Click “edit,” then mark a rebate claim line(s) you want to convert to a credit note. Click “functions” > “create credit note”

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You’ll get a message that reads “number of vouchers posted to the journal: 1.” The system automatically posted another general journal entry crediting the customer account and debiting the rebate accrual account.

To check the posting, navigate to general ledger > journal entries > general journals, switch the “show” parameter to “posted” and find a journal name defined in step 1 for the AR consumption journal. In this case it’s “ARCnsmp.”

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Now, the AR department can settle the credit note with an open customer invoice(s).

The steps for issuing a check payment for a rebate claim are like the steps for converting a rebate claim to a credit note. Don’t forget to link a customer account to a vendor account! 

Navigate to accounts receivable > customers > all customers, select a customer record, click <collect> on the action pane. Click “settle transactions,” then “functions” > “rebate program.” Next, click “edit,” and mark the rebate claim line(s) you want to issue a check for. Click “functions” > “pass to AP”

Note: I created a separate rebate agreement with the payment type “pay using accounts payable” for issuing check payments to customers.

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You’ll receive three messages. Open up the message details as you’re looking for an AP invoice journal number.

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Navigate to accounts payable > invoices > invoice journal, switch the “show” parameter to “posted” and find the journal number. The system credited a vendor account that was linked to the customer account, and debited the rebate accrual account.

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Now the AP department can generate a check payment to the vendor.

Each company processes rebates in its own way. Customer rebates can be accrued at the time of sales order invoicing, but it also can be cumulated and processed by week, month, year, customized period or lifetime. Rebates can be set up in tiers.

There are several limitations to the standard D365FO customer rebates functionality. A major one, is that during a credit note creation, the credit note number doesn’t get created automatically. The system leaves the invoice field blank.  Need a little more help? Drop us a line.

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