An accrual is your best current estimate of money you have earned and do not yet have, which makes it useful, and makes it dangerous if you treat it as certain.
Key takeaways
Accrue on invoice lines, applying the exclusions, not on gross spend.
Only accrue the tier you are confidently going to reach.
Proximity to a retrospective tier is an alert with a deadline.
Earned, claimed and received are three different numbers. Keep all three.
A line can qualify for two agreements at once, and often does.
Where the number comes from
Fig 1. How a purchase invoice moves the accrual. The exclusions step is the one that keeps your figure and the supplier’s within arguing distance of each other.
Lines, not totals
Accruing from an invoice total is quick and it is wrong. The exclusions apply at line level, one invoice frequently contains lines belonging to two different agreements, and at claim time the supplier will want the lines anyway.
Doing it at line level from the start costs nothing extra — the lines are already in the purchase ledger — and means the claim is a query rather than a reconstruction.
Do not accrue what you will not hit
Fig 2. The cost of optimistic accrual. The gap is not a rounding error; it is margin reported in one month and reversed in another.
The rule that works is to accrue at the tier you have already achieved, and to show the next tier separately as an opportunity rather than as income. Two numbers, clearly labelled, and only one of them goes anywhere near the management accounts.
This matters more than it sounds. Rebate accrued optimistically inflates reported margin for most of the year and then gets reversed in a single month, which makes that month look like a trading problem when it is a bookkeeping one.
The alert that has a deadline
What the tier alert has to say
How far short you are, in the basis the agreement uses — pounds, units or growth percentage, not a percentage of a percentage.
What it is worth, which under a retrospective tier is the uplift on the whole period, not on the shortfall.
How long is left, in weeks, against a period end date.
What that means in stock: roughly what you would have to buy, in terms a buyer recognises.
And the honest caveat: that stock has to be sellable, or the rebate is a discount on inventory you did not want.
Timing is everything with this alert. Six to eight weeks before period end is actionable. Two weeks before is a panic buy at the wrong price, and after period end it is a story about money you did not get.
Three numbers, not one
Earned is what the rules say you have accrued. Claimed is what you have submitted. Received is what has arrived as a credit note or a payment. They are three different numbers and the gaps between them are where the work is.
Most businesses that track rebates at all track the first one and assume the other two follow. The gap between claimed and received is typically the largest of the three, because a submitted claim sits in a supplier’s queue behaving exactly like an unchased invoice.