This is the second post in our series Extending Your ERP Ecosystem
|Tackling the incentive
In my last post, I discussed how the use of spreadsheets for managing complex incentive programs introduces unwarranted and unforeseen risks into manufacturing and technology companies. In this post, I take a look at two big risks posed by mismanagement of incentive programs – notably when it comes to paying out on incentives to your channel partners.
It’s no secret that, in an effort to drive sales and to increase market share, manufacturing and technology companies implement eligibility-based incentive programs at various points of the distribution channel. But these kinds of programs – based on variables like sales volume or amount of dedicated floor space – can present a number of challenges to your accounts payable department.
In order to make sure payments are made correctly, the accounts payable team needs to extract key information from the CRM system (such as the milestones or eligibility requirements outlined in a promotional agreement) and ERP systems (such as the invoice for payment) to calculate and verify incentive payouts to channel partners. What is typically an automated process now has a human element to it, which significantly increases the potential for errors, including underpayments, overpayments, or compliance and auditability issues.
Let’s take a deeper look at how underpayments and overpayments can impact your company both financially and operationally.
When you think about errors in incentive payment calculations, you probably think of the dangers of overpayment. No company likes the thought of doling out extra cash when it’s not needed. And the same goes for missed or inadequate payments. Because, while overpayment can be significantly detrimental, there are also serious consequences to chronic underpayment as well.
Calculations that result in the underpayment of channel partners can result in operational performance degradation over the course of time. Financials can be reported incorrectly and key business relationships can be put in jeopardy. These are things that can have long term consequences for the overall health and performance of a business.
Overpaying a channel partner has an obvious negative impact on the company – taking money away from the bottom line. Regular, small overpayments or duplicate payments on incentives can add up to a pretty significant total. The bottom line can take a severe hit. And complicating the issue? Most companies cannot immediately diagnose the issue, let alone treat it.
When overpayments are actually caught, companies exhaust time and resources trying to re-collect the overpaid amount. This is not only a drain on company resources, but can make your organization look sloppy or unprofessional when trying to re-collect payments made in error.
What about your company? How are you handling complex incentive creation, management, and calculations for your channel? Are you keeping harmony in your channel by paying the right people in the right amount of time, automatically?
We dive deeper into this topic in an upcoming webinar we are conducting with Forrester. We will take a look at the perils of mismanaging incentive payment processes and how you can expand your existing ecosystem to address this ongoing problem, regain lost revenue, and further ensure the health of channel partner relationships. Take a read of the preview of the webinar to learn more.