How do the rebate processors get paid?

Factual Questions
1

In my experience, rebates processed by the companies that made the products themselves (e.g. HP, Nikon) are more likely to be honored than those processed by a third party (e.g. Young America Corp).

So what I’m wondering is, do the reabte companies get paid more for rejected rebates? Or is there some other scheme? Do they get paid the same amount if a check is never cashed? Who gets to keep the money in that case?

2

I live about 45 minutes from Young America, MN, and have friends who live right outside there. (That has to be the smallest town in America with the most zip codes. I think there’s one zip code for about every 100 residents! Actually, all the residents use one zip, all the rest are for the mailing companies.)

Payment is entirely dependent on the contract with the manufacturer, which can vary a lot. Here are some typical options:

  • paid a fee for each rebate application they process.
  • paid one fee for each accepted rebate application, a different fee for rejected ones (sometimes higher, because they take more work).
  • paid a fixed price for processing up to x thousand applications, then additional fees for extras.
  • fixed price for processing the rebates, plus a budget for paying them. Paid additional incentives if they stay under that budget.

There are usually provisions for a minimum amount, even if the promotion flops and nobody sends in the rebate applications. There are often volume discounts (so the per-rebate fee gets lower as the volume gets higher). There are also ‘ceiling guarantees’, where the rebate company guarantees that no more than x$ or x% of the rebate applications will be approved – if they go over that, the rebate company eats the cost. (Young America used to avoid such contracts; I don’t know if that’s still true.)

In several of these types of contracts, it’s clearly to the financial benefit of the rebate company to reject as many rebate applications as possible. But too many rejections will cause customer complaints & bad publicity for the manufacturer. Also, some of these contracts shift much of the risk onto the rebate company – obviously, they expect to get paid more for taking that risk.

Regarding uncashed checks, it depends on whose bank account the checks were written on. Obviously, the money stays in the account until it is closed, and the owner gets to keep it. Contracts can be written to have either the rebate company or the manufacturer pay.