Rebate

When negotiating with suppliers, if the buyer cannot accurately forecast demand, the parties may agree a rebate arrangement. In this case, a rebate is calculated as a sum of money payable back to the buyer by the supplier, based on actual purchase volumes over the previous operating period. The arrangement is attractive to suppliers, as the discount is based on actual rather than estimated volumes, and is payable in arrears. The scale of the discount may be based on a volume price agreement, the greater the volume purchased, the greater the discount. For example, if purchases over the period exceed $100,000, a 1% discount is ‘earned’ payable in arrears. Rebates are sometimes used by procurement agencies as a means of funding their operations. Suppliers agree to charge customers a price that includes a premium due to the procurement agency that negotiated the arrangement as a fee for the service. See also Volume Price Agreement.