Ship and Debit: How Special Pricing Agreements Actually Work

Ship and debit lets a distributor stock at one price and sell at another — buying goods at list, shipping them to a named end customer at a lower price the supplier authorised in advance, and then debiting the supplier for the difference.

The authorisation comes first. That is the whole design, and it is what separates this from a discount: the supplier decided, before the sale, that this distributor could sell to this customer at this price for this quantity within this window. The claim that follows is checked against that decision rather than simply accepted.

The vocabulary

Four terms, one mechanism, and they get used loosely.

• Special pricing agreement (SPA) — the authorisation itself. Names the customer, the price, usually a quantity cap and a date window.
• Ship and debit — the mechanism: ship at the authorised price, debit the supplier the difference.
• Claimback — the claim raised to recover that difference. The money side.
• Deviated price — the authorised price itself, so called because it deviates from the standard price the distributor would otherwise sell at.

The terminology is strongest in electronics, semiconductor and industrial distribution, where a distributor may hold stock for months without knowing which end customer will buy it or at what negotiated price.

Why the mechanism exists at all

A distributor's problem is that they have to buy stock before they know who will buy it.

If a supplier wants to win a large end customer on price, the distributor holding the stock cannot simply absorb the discount — they bought at list. And the supplier cannot easily pre-discount the inventory, because when the goods were shipped into the channel nobody knew which units would end up in that deal.

Ship and debit resolves this by separating the two decisions. Stock moves into the channel at normal terms. The pricing decision for a specific deal is made later, in writing, and the money follows the sale rather than the shipment.

That is also why the authorisation has to be so specific. A blanket "sell this customer cheaper" would be impossible to reconcile; an SPA that names quantity and dates can be checked against every claim raised under it.

The claim, worked

Take one unit at a list price of ₹1,000. All figures illustrative.

The distributor acquires at ₹900, so at list they would earn ₹100. The SPA authorises them to sell to one named customer at ₹820 — 18% off list.

Sell at ₹820 having paid ₹900 and the distributor is ₹80 down on every unit. So they ship at the authorised price and debit the supplier the difference:

(₹900 − ₹820) × 200 units = ₹16,000

One nuance worth pinning down in any agreement: that calculation restores the distributor to cost, not to profit. Whether the claimback also returns their normal margin — making it cost-plus rather than cost — is a commercial term, and agreements genuinely differ. A distributor who assumes cost-plus and signs cost has agreed to do that business at zero margin.

What the claim is validated against

A claimback is not a request; it is an assertion that a specific authorisation covered a specific shipment. Four things have to hold:

1. The customer — the end customer on the claim is the one the SPA names. Selling authorised stock to a different buyer, however similar, is not covered.
2. The price — the claim is computed at the authorised price, not the price actually negotiated on the day if those have drifted apart.
3. The quantity — SPAs are usually capped, and each claim draws the cap down. Claim 200 units against an agreement with 150 remaining and the excess fails.
4. The window — the shipment date sits inside the agreement's validity period.

That four-way check is exactly what makes this a chargeback rather than a discount. The distinction between the two main claim types in distribution — validated against an authorisation, versus billed for a difference over a period — is set out in billback vs chargeback, and the vocabulary more broadly in the billbacks, chargebacks and deductions glossary.

Ship and debit vs price protection

These get run together constantly, and the difference is clean once you look at what triggers each.

	Ship and debit	Price protection
Triggered by	A sale to an authorised customer	A price cut by the supplier
Compensates	The gap on units sold	The loss on stock still held
Population	Units shipped under one SPA	Qualifying inventory at the cut-off date
Known in advance?	Yes — authorised before the sale	No — the cut happens to you
The risk it removes	Losing a deal on price	Holding stock through a price fall

Both pay a rate difference and both settle after the fact, which is why they are confused. But one is about a deal and the other about inventory, and they are computed on entirely different populations of stock. A distributor can be owed both on the same product in the same month, for different units.

How the inventory side works is covered in price protection in sales.

Where claimbacks fail

Rejections cluster around the same few causes, and none of them is about whether the sale was real.

The window closed. Goods shipped a few days after the agreement lapsed. The commercial intent was obvious and the claim still fails, because the authorisation is the thing being checked.

The quantity was already drawn down. Multiple claims against one SPA, and nobody was tracking the running balance. The last claim in is the one rejected, which is often not the one that caused the overage.

The price drifted. The deal was renegotiated after the SPA was issued and the paperwork never caught up, so the claim and the authorisation state different prices.

The customer does not match. A group buying entity, a subsidiary, a different ship-to on the same account — anything where the named customer on the authorisation is not literally the buyer on the invoice.

All four are reconciliation failures rather than commercial ones, which is what makes them frustrating: the business was won, the goods shipped, and the money is lost to paperwork. What happens after a rejection is covered in the chargeback dispute process, and the end-to-end movement of a claim in the chargeback process.

What this looks like in Indian distribution

The mechanism is universal; the vocabulary is not. "Ship and debit" and "SPA" are the terms in US and global electronics and industrial distribution, and they are much less common on an Indian scheme circular.

The same economics show up here under different names. A CFA or stockist selling at a contracted institutional or tender price rather than list, then recovering the difference from the company, is running the same arrangement — authorisation first, deviated price, claim validated against the contract. That flow, including how contract price sits against list or WAC, is worked through in chargebacks in pharma distribution.

If you are reading an agreement rather than a glossary, the useful question is not what the mechanism is called. It is whether the claim will be validated against a prior authorisation — because if it will be, everything in this article applies whatever the paperwork says on the cover.