What is Cooperative Advertising?

Cooperative advertising is a cost sharing arrangement to pay for advertising. Under this agreement, the manufacturer of goods agrees to compensate its distributors and retailers for a certain proportion of the advertising and promotion costs related to their sale of the manufacturer’s products. The amount paid by the manufacturer is typically capped at a certain percentage of the amount of goods purchased from the manufacturer. These arrangements can benefit both parties, since any resulting customer purchases benefit both the sellers and the manufacturer. However, the amount that a manufacturer budgets for this type of advertising tends not to be spent, since distributors and retailers have to complete paperwork to show that they have engaged in the required advertising, and prefer not to do so.

Accounting for Cooperative Advertising

A seller of goods typically bills the manufacturer for advertising claims, and records this amount as a receivable. It may be recorded as a non-trade receivable, since the manufacturer is not a typical customer of the seller. The receivable is cleared from the seller’s books when the manufacturer remits payment to it.