Trade Accrual: Faster Forecasting and Higher Accuracy

When you are an Account Manager for a Consumer Goods company and you think about trade spending, you are probably most concerned with spending and trade rate compared to your budget.  Am I overspent?!?     

But to the company’s Finance department, trade spending is an expense that must be forecasted and tracked…and reforecast and re-tracked.  Because trade spending is such a huge expense – a value equal to 15-20% of gross revenue for highly promoted brands- getting this forecast wrong can swing the Profit & Loss (P/L) statement in a big way, both unfavorably and favorably. 

What is the Trade “Accrual?” 

This forecast is called an “accrual” because billback, scan, and fixed fee transactions (ok… deductions) take place after the promotion has been executed, but the expense must be reported in the promotion period.  This lag ranges from weeks to months.  The brand has committed to the spending, but it hasn’t yet “hit the books.”  They must “accrue” this in-progress spending when each financial period is closed, both monthly and at year-end.   

On the other end of the spectrum is off-invoice (OI) trade spending used to execute things like everyday low price (EDLP) allowances.  OI allowances reduce the invoice price to the customer.  While this is categorized as trade spending, it is not part of the trade spending accrual because OI transactions take place when the product is shipped; the expense has already “hit the books.”   

Status Quo 

Absent a tool that helps with this task, trade accrual forecasting is a manual exercise that typically includes identifying last year’s spending and determining adjustments for changes in the current period.  When a brand has few customers, SKUs, and promotions, the manual process works.  It is a relatively simple exercise that can be completed quickly.    

As a brand grows, however, complexity grows with it.  The risk of those P/L swings increases significantly.  When there is an unfavorable swing, the difference hits expenses in the next period.  When there is a favorable swing, the bottom line improves, but the opportunity to apply those funds to drive sales has been lost. 

TPM Helps Forecast the Trade Accrual 

A tool that helps Consumer Goods Finance teams increase the speed and accuracy of trade accrual forecasting is Trade Promotion Management or TPM.  The primary users of TPM are Account Managers in Sales and the Accounts Receivable (AR) team.  The Sales team plans promotion details: customers, products, timing, deals (i.e. trade spending), and volume.  AR (or whomever manages deductions) uses TPM to validate and properly categorize deductions by matching them to approved promotions and/or non-promotion expense categories, like damages.  Here’s what the system does for Finance: 

  • Reports the original spending commitments (based on estimated sales).  Many systems will categorize this by General Ledger (GL) account. 
  • Increases the accuracy of the committed spending for billbacks and scans by recalculating these variable allowances when actual shipment and/or POS data is available. 
  • Keeps track of the of the total promotion commitment through the settlement process:  how much has been settled (deducted) and what is remaining.  Zeros-out remaining dollars when promotions are closed. 
  • Keeps track of deduction balances: total, what’s been matched, what is remaining, and how old it is. 

Some TPM systems even have specialized Finance-specific features including financial periods that you can close and reporting that makes trade accrual forecasting turn-key.  

Why not just use OI for promotions?   

Since OI doesn’t require an accrual, why not use it for everything?  Three reasons: 1) OI exchanges money for every case you ship.  Some of this product may not be sold on promotion, thus you subsidize and reduce profitability on non-promoted sales.  A better option is a scan allowance.  With a scan, you only get invoiced for the allowance on register sales to shoppers…you pay only for performance.  2) Some forms of trade spending, like ad and display fees are fixed sums of money and cannot be executed using OI. 3) Some customers buy their product from distributors, but negotiate promotions with you (AKA indirect retailers).  You don’t sell to them so you can’t give them an OI allowance.  

When will I need TPM?   

There are two dynamics that trigger a search for TPM.  One is a need for greater structure, control, and efficiency.  The brand has outgrown spreadsheets, email, and shared files for management of their sales processes.  This is usually driven by growth in customers, products, promotions, transactions, and people involved in the process.  TPM helps because it is a business system built around the Consumer Goods sales process.  Trade accrual forecasting typically fits into this category.  

The second is the transition from a go-to-market strategy of maximizing sales to one of maximizing profit.  With this transition comes a greater need to scrutinize distribution and promotion investments. This requires more understanding of where money is being spent, how it is being spent, and if the results are good or bad.  TPM helps because it organizes data in a structured, standard way that enables fast analysis of business performance. 


Excel is definitely the tool of choice for Consumer Good brands for accrual forecasting until it becomes “a cruel” exercise (sorry).  Deployment of a Trade Promotion Management system will provide greater insight into trade spending, improve accuracy of the accrual, and help you avoid surprises that swing company profitability.   

About UpClear

UpClear is a global Enterprise Software provider for Consumer Goods brands.

Our cloud-based BluePlanner software is a best-in-class platform supporting Trade Promotion Management & Optimization, Integrated Business Planning and Revenue Growth Management.

We serve clients in over 25 countries across America, Europe, Asia, and Africa from our offices in New York, London, Paris, Hong Kong, and Australia.  Clients and brands we work with include Bissell Homecare, Beyond Meat, Blue Buffalo, Blue Diamond Growers, Butcher’s Pet Care, Community Coffee, Crystal Farms,  Danone, Essentia Waters, Ferrara Candy Company, Ferrero, Godiva, Jelly Belly, Hovis, King Arthur Baking Company, King’s Hawaiian, Kraft-Heinz, LALA, Lundberg Family Farms, Nature’s Bakery, Perfetti Van Melle, Premier Nutrition, Ripple Foods, Twinings, Vita Coco, Utz, and Warburtons.

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