In today’s economic environment, CPG companies are under growing pressure to drive profitable growth. Whether through portfolio expansion, new channels, or operational efficiency, success depends on making smarter, more transparent investment decisions. With trade spend ranking as the second-largest expense after cost of goods sold, optimizing how it’s managed is essential.
One often-overlooked area in this equation is trade accruals. While not a cost in themselves, inaccurate or inefficiently handled accruals can obscure visibility into the true drivers of profit and revenue, increase the risk of overspending, and consume valuable time. They also impact cash flow predictability and can delay settlements—straining retailer relationships and frustrating both Sales and Finance.
What are trade accruals?
Accruals are a fundamental concept in accounting. They refer to the recognition of expenses and revenues at the time they are incurred or earned, rather than when cash is exchanged. This method—known as accrual accounting—ensures that financial statements reflect the true economic activity of a business, regardless of when payments are made or received.
Accrual accounting and financial reporting standards
Accrual accounting is a core principle in both U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). Under GAAP, it’s the required method for preparing financial statements, aligning revenues with the expenses that generate them in the same reporting period for a more accurate view of performance. IFRS also mandates accrual accounting, recognizing it as a more reliable and relevant basis for financial reporting that supports better decision-making.
Importance of trade accruals for CPG
In the CPG industry, this principle is especially critical. Promotions and contracts often span multiple accounting periods. Without proper accruals, expenses may be recorded too early or too late, distorting the company’s financial picture.
Trade accruals in practice
Trade accruals are used to account for promotional and contractual trade spend that hasn’t yet been invoiced or paid. These include:
- Trade promotion accruals: Linked to short-term activities like temporary price reductions (TPRs), new product launches, or in-store displays. These are typically calculated based on forecasted or actual sales volumes.
- Contract accruals: Related to long-term agreements with customers—such as annual volume discounts or lump-sum payments—these are typically accrued over the duration of the contract unless a deviation is specified.
Managing trade accruals is rarely simple. While complexity may be lower in early-stage startups, most CPG companies today face labor-intensive, often fragmented processes. As brands grow, so does the challenge—Manual tracking becomes riskier, and the potential for month-over-month P&L volatility increases.
A shared pain point for Sales and Finance
When trade accruals are inaccurate or delayed, the consequences ripple across departments:
- Finance loses visibility into true liabilities, increasing the risk of budget misalignment.
- Sales may misjudge available budget—either overspending due to under-accruals or holding back because of over-accruals—limiting their ability to invest in growth.
- Both teams face end-of-month surprises that erode trust, reduce efficiency, and delay post-event evaluation.
Disconnected systems—such as a TPM tool that doesn’t talk to your ERP—only make the problem worse.
Why not eliminate the need for accruals with OI?
On-invoice (OI) allowances are a common mechanism in trade spend, especially for agreements like everyday low pricing (EDLP). With OI, the discount is applied directly to the invoice at the time of shipment, meaning the expense is immediately recorded—there’s no need for an accrual entry.
This simplicity makes OI attractive, but it’s not suitable for all types of promotional activity. Here’s why:
- Lack of precision: OI discounts apply to every unit shipped, regardless of whether it’s sold during a promotion. This can lead to unnecessary margin erosion on non-promoted sales. More targeted mechanisms, like scan-based allowances, only apply discounts to items sold by retailers during the promotional period—ensuring spend is performance-based.
- Inflexibility for fixed fees: Many trade investments—such as advertising slots, in-store displays, or listing fees—are fixed costs. These cannot be executed through OI, which is designed for per-unit discounts.
- Limited reach for indirect channels: Some retailers negotiate promotions directly with manufacturers but purchase through distributors. Since the manufacturer doesn’t invoice these retailers directly, OI discounts can’t be applied—making accrual-based methods essential for managing these relationships.
In short, while OI has its place in trade spend strategy, it lacks the flexibility and control needed for comprehensive promotion management. That’s why robust accrual capabilities are critical—especially for CPG companies navigating complex promotional landscapes.
How Visualfabriq solves the trade accruals problem
Visualfabriq’s solution uses industry-leading logic to address the complexity of trade accruals. It ensures that both contract and promotion accruals are calculated accurately, posted automatically, and made visible in real time—improving financial accuracy, operational efficiency, and cross-functional alignment.
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Key capabilities
- Real-time liability tracking for all non-OI trade spends
- Automated postings to financials at the product-item level
- Flexible mapping of expense accounts by spend type
- Support for multiple calculation methods (billback, scan, lump sum, etc.)
- Full visibility into Customer and Product P&Ls
- Fund Usage Checkbook for intra-promotion trade visibility
- Seamless ERP Integration, keeping the ERP up to date without manual effort
Trade accruals: the bottom line
Trade accruals—both promotional and contractual—are no longer just a Finance concern. While they can’t be influenced directly, ensuring their accuracy and timeliness is essential for effective revenue growth management. When handled well, they provide the reliable data needed to reduce risk, improve forecasting, and align teams around a single version of the truth.
Visualfabriq’s empowers CPG companies to manage promotions and trade spend with precision, transparency, and speed. In a world where cost-cutting alone won’t drive growth, smarter trade accruals might just be your biggest untapped opportunity.
Is it time to re-evaluate your trade spend tools and processes?
If your current systems aren’t delivering the visibility, accuracy, or agility you need, it may be time to explore smarter solutions. Software modules like Visualfabriq’s Trade Spend Master and Trade Promotion Master are designed to help CPG companies take control of their trade spend with precision and confidence. By partnering with experts and adopting purpose-built technology, you can uncover new opportunities for growth, eliminate inefficiencies, and increase predictability.
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