Money Tree

As organizations in many industries struggle through the pandemic for countless reasons, there are hidden profits, a virtual money tree – in the historical supplier payments that will be lost if not identified and captured.  Typically, these hidden profit dollars are meaningful and relative to the size of the organization.  There are a variety of potential risk factors that impact the number, and value of overpayments and errors.  These factors include traditional risks and non-traditional areas created as a result of the global pandemic.

Depending on the industry and the supply spend, an organization that spends $500 million annually on supplies, can be processing upwards of 500,000 invoices annually – $1 billion in spend = 1,000,000 invoices.  Even with advanced knowledge of Accounts Payable management, tools, and automation present in most AP departments today, one cannot expect that every payment, every line, can be accurate – every time.

A Solid Process Still Has Risks

There are multiple risks that are inherent in the transactional cycle.  While the upgrade of an ERP, addition of new tools, and payment automation seem to lead an organization closer to the error-free payment, they are the very things that can create the risk of overpayment.  A few of the areas where these risks are present are:

ERP Conversions Potential duplicate payments due to systems crossover, process disconnects unidentified
On-Boarding Acquisitions Potential duplicate payments due to payments made from both systems, supplier invoicing parent organization and acquired organization
Work Arounds By-passing internal controls
New technology (tools – epayables) Learning curve and potential process disconnects unidentified
Turnover – Reduction of Force Turnover in AP and/or Purchasing. Reduction of staff, potentially heavier workload on remaining team.
Newly Remote Workforce Challenges by both organization and suppliers on establishing remote workforce due to pandemic.
Vendor Master File “Dirty” vendor master easily allows for duplicate payment, incorrect pricing, incorrect payment method

The Financial Impact of the Pandemic – Effects All Businesses

Take for example our non-profit health systems.  Operating margins prior to COVID were roughly 2 – 4%.  Today, those margins are in the negative double digits.  The cost of supplies, additional labor costs, and large decreases in outpatient / elective surgeries have proved to be the nexus in the decline of cash on hand and perhaps, sustainability.

Our hospitality industry, including hotels, airlines, restaurants, and vacation destinations simply have a fraction of the volume of business compared to 2019.  This trickles down to the wholesalers and distributors that support this industry.

Many manufacturing companies were forced to shut down for extended periods during the late spring and early summer.  The guidelines and recommendations for physical distancing prevented many from re-opening without some re-design of the manufacturing floor.  Additionally, the demand has not returned to pre-COVID for a large portion of the industry.

One of the only industries thriving is the grocery business.  The supply chain has struggled to meet increased demand for grocery and household items.  Supplier shortages and transportation challenges are ever present and the percentage of items that are short shipped has grown considerably.  This exacerbates the potential issues throughout the procure to pay process, and results in invoices which take longer to process.  Errors can occur exponentially.

Consider that suppliers have faced increased pressure to deliver in some cases or have not had adequate and timely materials to produce their goods.  They too have faced shutdowns and the remote working environment.  Many have experienced challenges with their teams and technology, childcare, and illness.

Typical Risk Factors – Any Industry, Any Time

Within every industry, there are areas of risk that can be unique to that industry.  These operational nuances can create risks related to accuracy within payments to suppliers and on these supplier accounts.  Some examples of these additional risks:

  • Grocery/Retail – Short ship on deals, direct store delivery (DSD), pricing allowances
  • Health Systems – Pricing disparities by location, returned goods crediting, poor vendor master file
  • Wholesale/Distribution – Short ship on deals, pricing allowances, price changes
  • Manufacturing – Rebates / incentives, discounts, price changes

No Time Like the Present

Utilization of a professional Accounts Payable / Procure to Pay Recovery (P2P) Audit firm to identify and recoup these funds makes both financial and practical sense for medium to large organizations and is a recognized Best Practice.  These projects are on a no-risk contingency basis and are laser-focused on finding and recovering these lost profits.  Engaging a firm that identifies the root cause of errors / overpayments, providing process improvement recommendations that will mitigate future profit leakage, is often more valuable than the recovered funds.

Conducting an Accounts Payable Recovery Audit with a qualified firm makes practical, as well as financial sense in the aspect of keeping AP teams focused on the challenges of today while a retrospective look (and recovery of funds) is underway.  These projects deliver high value to the bottom line with low impact to the client’s team.  Most organizations do not have the bandwidth as well as, the tools and skillset, to take the massive amount of data and to develop the analytics, refine the algorithms and research the output, much less the time that it takes to work with the suppliers to secure the recovered funds.

Strategic Audit Solutions has developed software and analytics based on decades of experience with hundreds of audits, to identify potential errors and overpayments.  Our team can combine the disparate data of several ERP’s and other sources, to analyze all payment data.  Highly skilled professional AP / P2P auditors then review the output of these analytics, along with current ERP data, to drill down into and identify true errors and overpayments.  This information is then presented to suppliers in order to secure credits or refund checks.  Additionally, root cause and process improvement recommendations are made to mitigate future losses.

Find the right partner and consider executing this review.  Planned well and done correctly this is not a painful process and should not take an extended period to complete.  This project can add hundreds of thousands, to millions of dollars back into an organization’s cash flow at this critical time.

Contact Strategic Audit Solutions to discuss your company’s recovered funds opportunity & find your own money tree……


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