Supplier rebates and targets

What does this tool calculate?

Many suppliers give a business more than one rebate at the same time: a rebate if its purchases reach a certain target, a rebate on what it paid (or on what it paid on time), a rebate if its purchases grew over the comparative period, and a fixed amount on reaching a goal. The tool calculates each rebate separately, then the total, and tells you how much more you need to purchase to reach the next tier and how much your rebate would increase then.

The result is split by settlement method (from the supplier balance, as free goods, or in cash), with a table of each rule's condition and whether it was met, and the suggested journal entries. It is for the accountant when closing the period and reconciling the supplier account, and for the business owner or purchasing manager when negotiating the agreement. The whole calculation happens inside your browser.

How to use it

1. In the settings: does the supplier calculate the rebate on purchases before VAT or including VAT, are returns deducted, and does the supplier issue a tax credit note for the rebate.
2. Enter the period's figures before VAT: purchases and returns, then only what your rules need: comparative period purchases (for the growth rebate), and the amount paid, of which paid on time, and the supplier's end-of-period balance (for the payment rebate).
3. Add the rebate rules as in the supplier agreement (up to 8 rules), and choose the settlement method for each rule.
4. The result appears instantly, and you can download the PDF report or an Excel file with real formulas.

The four rebate types and the settlement method

• Purchase target rebate: tiers “on reaching” a set amount (up to 6 tiers), and the first tier may start above zero, with no rebate below it.
• Payment rebate: a rate on everything paid in the period or on the amount paid on time only. It can have tiers, and an optional condition that the supplier's end-of-period balance does not exceed a set cap. An early payment discount is a case of it with the “on time” condition.
• Growth rebate: a rate on purchases if they grew over the comparative period by a set percentage or more.
• Fixed amount (incentive): a set amount, with no condition or on purchases reaching a set level.

Each rule has a settlement method: Deduct from supplier balance, Free-goods invoice of the same value, or Bank transfer or check. Each rebate is rounded to two decimal places (halalas) before adding. If a rule's condition is not met, the tool shows the reason and what is missing, for example: “The end-of-period balance 340,000 is above the cap 300,000; it must fall by 40,000 to earn the rebate”.

The two methods: at the tier's rate or progressive

Suppose these target tiers: from 500,000 at 1%, from 750,000 at 1.5%, and from 1,000,000 at 2%, with purchases of 880,000:

• At the rate of the tier reached (the most common in supplier agreements): all purchases at the rate of the highest tier reached: 880,000 × 1.5% = 13,200. Had they reached 1,000,000, the rebate would be 1,000,000 × 2% = 20,000.
• Progressive: each part at its tier's rate, with no rebate below the start of the first tier: 250,000 × 1% + 130,000 × 1.5% = 4,450. Had they reached 1,000,000, it would be 6,250.

With the first method the rebate jumps at the start of each tier: purchases of 999,999 give 14,999.98 at 1.5%, and one extra riyal raises it to 20,000. That is why the tool shows how much you need for the next tier.

A full example with four rules

Purchases before VAT are 920,000, returns 40,000 (deducted), comparative period purchases 800,000, total paid 700,000 of which 620,000 on time, the supplier's end-of-period balance 260,000, and the supplier issues a tax credit note:

• Purchases base: 920,000 − 40,000 = 880,000.
• Target with the tiers of the previous example and at the tier's rate, from the balance: 880,000 × 1.5% = 13,200.
• On-time payment 0.5% provided the balance does not exceed 300,000, from the balance: the balance is 260,000, so the condition is met: 620,000 × 0.5% = 3,100.
• Growth 0.5% if purchases grew by at least 10%, from the balance: 880,000 ÷ 800,000 − 1 = 10%, so the condition is met: 880,000 × 0.5% = 4,400.
• Fixed amount 5,000 on purchases reaching 750,000, as free goods: 5,000.

The total is 25,700 SAR: 20,700 from the balance and 5,000 as free goods. Target achievement is 880,000 ÷ 1,000,000 = 88%, and you need 120,000 more to reach the 2% tier, so the target rebate becomes 20,000 instead of 13,200, i.e. 6,800 SAR more.

Had comparative period purchases been 850,000, growth would be only about 3.53%, so the growth rebate is not earned, and the tool shows that purchases are 55,000 short of 10% growth.

Suggested entries and the tax credit note

For the previous example:

• Deduction from balance: Dr Supplier 23,805, Cr Supplier rebates and incentives 20,700, and Cr VAT — Input 20,700 × 15% = 3,105.
• Free goods: Dr Inventory — free goods from the supplier 5,000, Cr Supplier rebates and incentives 5,000.
• Rebate paid in cash: Dr Bank, Cr Supplier rebates and incentives.

If the supplier issues a tax credit note for the rebate linked to its invoices, the rebate reduces input VAT, which is why the tool calculates VAT on the deduction from balance. If it does not, choose “No” in the settings, so only the rebate is recorded and input VAT is not adjusted. Review the VAT treatment for your case before posting, especially for free goods.

Frequently asked questions

Content last reviewed: 2026-11-04