Rebate Meaning

A rebate is a cashback or refund given to the customers against the purchase, which acts as an incentive to complete the transaction. Unlike discounts allotted before the actual sale, rebates are offered after the sale. It is a form of marketing strategy provided to the client to facilitate future transactions.

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How does Rebate Work?

A rebate is a form of cash back against the purchase of the goods given to the buyer by the manufacturer or the seller of that respective goods after they sell them. From the sellers’ point of view, it helps them attract more buyers for their goods. Sometimes, the buyers lose the receipt of payment which prevents the seller from paying the rebate. On the other hand, from the buyer’s point of view, it acts as an incentive or a cashback against their purchases which is a profitProfitThe profit formula evaluates the net gain or loss of an organization in a particular accounting period. It is computed as the difference between the total sales revenue and the overall expenses incurred by the company.read more.

Example of Rebate

Suppose a store named YZ selling widgets is giving a flat 5% rebate on the widgets’ purchase. A buyer, Mr. X, purchases a widget pricing $10,000. When he purchases that widget, he is provided with a 5% instant rebate receipt. The widget price was $10,000, but the 5% instant rebate costs $9,500, and Mr. X earns a profit of $500 on his purchase.

Let us see what shall be the invoice cost in this case.

Invoice Cost can be calculated as follows –

Invoice Cost = Product Cost- Instant Rebate Amount

  • = $10,000- $500Invoice Cost = $9,500

Types

  • Discount Rebate: It is a guarantee of a reduction in the value of the goods. These are used while calculating the expected costs.Target Rebate: It is a type in which there is no actual guarantee of a reduction in the goods’ value. These rebates are not used while calculating the expected costs. The seller only gives such types to a buyer when the seller believes that the buyer is eligible.Instant Rebate: It is given to the customer immediately without further delay at the time of purchase.Standard Rebate: In this type, the customer has to mail the coupon with the proof of payment or cash receiptCash ReceiptA cash receipt is a small document that works as evidence that the amount of cash received during a transaction involves transferring cash or cash equivalent. The original copy of this receipt is given to the customer, while the seller keeps the other copy for accounting purposes.read more which the store workers after that check, and if the sale proves to be legit, the customer is provided with a cashback.

Regulations

The United States, Connecticut, states the rebate regulations in the country according to section 42-110b-19(e). The following are the main regulations –

  • Sufficient Time for the Buyers: The buyers with the rebate coupon must be given sufficient time to submit the coupon and the payment proof.Favorable Price: The price offered for the goods should not be the post-rebate price which means the rebate price shouldn’t be included.Flexibility with the Buyer: The seller must be flexible with the buyer, so the seller can’t be too strict about asking for coupons or proof. Even if the buyer gives a photocopy of the payment receipt, the seller must accept it.

Uses

  • It is a sales promotion technique used by the seller to attract more customers to purchase their goods.The buyer uses it to get a cashback or incentive against the good purchased.It alters the good’s pre-rebate price or actual price in the buyer’s favor.

Benefits

  • Increased Purchasing Power: It helps the customers earn a profit against the goods they have purchased by providing them with cash back or refund, which increases their purchasing power.Increase in the Sale: Due to the availability of cashback or refund on the purchase, rebates attract the customers, increasing the sale for the retailer.Free Advertisement: It encourages customers to purchase by giving them a fair deal. When a customer gets a fair deal, they don’t keep it to themselves but encourage others to try, which helps the retailer advertise without cost.

This has been a guide to what a rebate is & its meaning. Here we discuss how it works, its types, examples, uses, and benefits. You can learn more about it from the following articles –

  • Accounting StatementVolume DiscountDiscount Allowed and Discount ReceivedCash Discount