The Impact of Tariffs on Ship and Debit (SPA) Programs

When tariffs were announced in February, we cautioned that the best strategy for distributors was to focus on their processes so that they could facilitate passing through the price increases. Part of our guidance was to automate implementation of price increases, review T&Cs for quotes, contracts, and SPAs, and to communicate.

In fact, back in December we shared with a major distributor that there would be tariffs and that they should focus on process then.

Since then, we’ve seen numerous distributors share communiques with their customers essentially saying, “price changes are coming due to tariffs, and we’ll tell you when we know.”

But a major issue for distributors will be the potential for lost margin, and much time being invested, due to the impact of tariffs on ship and debit (SPAs).

The key here is strong administration.

While ERP systems have gotten better over time, and the process is better for larger distributors, for the vast majority of distributors, and manufacturers, it is not where it needs to be.

This is an area where an investment in technology, and having the technology outsourced, can have a significant ROI.

Larry White, president and founder of Interlynx Systems, has extensive experience, and multi-industry experience, with ship and debit (what he calls “rebate”) systems. His understanding of the business is driven by a decade long stint as Vice President and General Manager with Ingersoll Rand and learning the root causes of channel friction that distract from a distributors and manufacturers from a constructive relationship. And he knows the electrical industry as they have clients in the space.

Larry shared his thoughts on the impact that tariffs will most likely have on ship and debit / SPAs.

The Impact of Tariffs on Ship and Debit Programs

 In the world of Electrical and Automation Distribution, ship and debit programs (also known as SPAs) play a crucial role in managing pricing strategies between manufacturers and distributors.  Ship and debit plans allow the distributor who does the work at accounts to gain an earned price advantage and thus be rewarded with the business.  Manufacturers and their distributors can compete in very tight competitive situations without disrupting “normal” pricing levels.

On paper it is a triple win for customers, distributors, and manufacturers.

For our industry, the concept started slowly with a handful of ship and debit exceptions in a sea of normal business.  Distributors and their manufacturing partners processed the paperwork manually and things mostly worked out.  Then came the economic storms, first in 2001, and again in 2008.   During those years, the concept went from a rarity to “standard business practice”.

Now in 2025, and with the onset of tariffs, the challenges for both distributors and their manufacturing partners is about to get worse.  Simply stated, the introduction of tariffs for many (and an expansion for some that were impacted by the 2018 tariffs) will significantly complicate existing programs, and lead to operational and financial implications, especially those without automated solutions.

 The Role of Tariffs

Tariffs are defined as taxes imposed on imported goods, affecting international trade by increasing the cost of those goods. In our world, tariffs can arise from the trade policies and regulations being laid by the US Government and the reactions of other countries. Further, it is difficult to fathom a distributor who doesn’t have many supply-partners with manufacturing in other countries.  Even the most domestic suppliers probably have components that go into their final product which are manufactured offshore.  There will be significant changes in pricing structures across the industry.

 First and foremost, there will be increased costs. The imposition of tariffs raises the cost of goods, forcing manufacturers to adjust their list prices. This adjustment complicates the ship and debit process.  Distributors may need to offer deeper discounts to remain competitive, this will impact their internal reimbursement calculations.

Further, both manufacturers and distributors must frequently reevaluate pricing agreements to account for these increased costs.  Point in mind, that many manufacturers use a system where “starting” prices are manually entered.  Imagine the pain associated with adjusting prices individually rather than through a fully automated system.

Since some manufacturers will try to offset at least a bit of the price increase, there will be frequent adjustments made to list prices along the way.  In the case of mostly domestic production, the list prices will not reflect a straight percentage, instead calling for an adjustment made part by part.

Distributors who have made customer commitments to time-based price stability will find themselves either absorbing costs or working through disputes and new negotiations with customers.  Further, because of the lag in pricing adjustments from manufacturers, many may soon find themselves arguing reimbursement amounts with suppliers.

The administrative burden associated with tariffs may overwhelm ship and debit processes, especially those who do not have a well-developed and automated system.  This will most likely manifest itself in the accounting departments of distributors and manufacturers. There will be additional work on the distributor’s side to provide proof of the actual costs when submitting reimbursement claims.  It is reasonable to assume that rebates will lag well beyond the current standard of 30-day processing.

What can we do to prepare?

• First, Communicate. We recommend that distributors meet with their partners to set definitions as to how the tariffs will be pushed through the system.  This is especially true for items that are held in stock for “normal price” sales as well as utilized on ship and debit orders.
• Secondly, Automate.  If you are a distributor doing ship and debit order reconciliation manually or using a homegrown semi-automatic fashion, changing now will provide you with a good ROI and I have case studies and references to prove it.  If you are a manufacturer who can’t easily update your price model or respond quickly, using a system with that capability can save you both time and money.
• Thirdly, Legitimate.  Transparency in your calculations is paramount.  The ability to quickly review submissions on both sides and monitor their status creates trust between partners.  Trust during this unsettling time will pay dividends.  Use a system that legitimizes the calculation basis.

If you are a manufacturer looking to automate, choose a system that is distributor-friendly to avoid unnecessary friction with your distributor partners.  “Friction is the enemy of mindshare.”

If you are a distributor looking to automate, choose a system that can accommodate all the differing supplier requirements in submitting claims and systems nuances.   “Tedium is the enemy of accuracy.”

Larry White is the President and Founder of Interlynx Systems and one of the leading experts in the field of automating distributor/manufacturer interactions.  Interlynx Systems has developed a Rebate (Ship & Debit or SPA) Management System that helps Distributors and Manufacturers partners work better together through the elimination of Ship & Debit related “friction.”

Thoughts

• Are you tracking what percentage of your sales are impacted by SPAs? The margin on this business vs your non-SPA business?
• What will happen to your business if the net profitability of your SPA business declines due to not pushing through price changes on a timely basis?
• If your SPA reconciliation process is delayed, what could this mean for your cashflow?
• What percentage of your SPA submissions are automated? The error rate? What percentage isn’t? How much time is spent manually doing SPAs? What is the impact on cash flow?
• If you haven’t reviewed your T&C’s and started discussions with your customers to make them aware (and talking to them rather than just an email), time is of the essence.
  • You may need senior management to visit key customers.
  • Purchasing and/or finance should be educating sales on the implications of tariffs so that they understand and know what to say.
• If you’re process is not as close to 100% automated as it could be, I suggest reaching out to Larry and Interlynx Systems to learn more about their Rebate (SPA) Management System and to inquire about the feasibility for your scenario.

The reality is that there is nothing you can do about tariffs. All you can do is control what is within your control … which is how you react to the information that is shared and prepare yourself, your teams, and communicate with your customers.

And expect that what we know today will change on April 2 and could change for a bit. Some tariffs will be here long-term, others could be transient, and you may want to build into your expectation that there will be other / new ones in the future.

Automating your SPA process can help safeguard SPA-generated margins.