[IMGCAP(1)]Large accounts payable organizations manage millions of payments to thousands of vendors each year.
These complex purchasing environments, with their high transaction volumes and complex pricing, can lead to costly accounting errors, lost discounts and improper pricing. The result? Money missing from the bottom line.
There are common adjustments after a payment has been made—such as returns, refunds and warranty issues—that can lead to accounting anomalies between companies and their suppliers. These are anomalies that the accounts payable department probably isn’t aware of, even if they are conducting third-party or internal recovery audits. And, they are likely costing a bundle.
Why? It’s a common problem: A company’s AP accounting records don’t match that of the suppliers’ accounts receivable records. And, just as the AP department is incentivized to pay bills in a timely manner, suppliers’ AR departments are incentivized to apply cash. But, as AR organizations continue to drive down operational costs, most don’t have the time or resources to clean up aging credit balances. The result is un-offset credits sitting with a company’s supply base. For large enterprises, this could amount to millions of dollars on an annual basis.
Most companies use ERP systems to connect their departments and processes. Consider this—what if you could connect your company’s AP records to your suppliers’ AR records to ensure an ongoing reconciliation? You’d catch these credits in your supply base on a regular basis. And, you’d be able to proactively identify and resolve processes issues with suppliers to reduce future reconciliation issues.
That is the process of a comprehensive statement audit. By implementing the following best practice steps for deploying a comprehensive statement audit review, organizations can improve their credit recovery processes for a better-looking bottom line.
1. Start with accurate supplier data: Connecting with suppliers starts with having the right data and communication preferences. Supplier data deteriorates quite rapidly, so it’s no small feat to maintain an up-to-date database. For an effective statement audit, you need a system that will automatically manage supplier data, cleanse and identify issues, enrich with external data, and ensure contact information and communication preferences are up-to date at all times.
2. Drive supplier compliance across multiple communication channels: Supplier compliance is an ongoing process; contacting a supplier just once is not enough. The statement audit process is analogous to collecting past due balances—outreach statistics show that multiple touches are required to drive maximum compliance. Using an automated, pro-active, multi-channel approach to drive compliance is critical to an effective statement audit.
3. Use technology to capture and validate supplier statements: With the mass volume of outreaches, statements and supporting documents, and verifications involved in a statement audit, technology is essential to tracking and managing the process. Technology can ensure there is an easy way to track, manage, analyze and verify information sent to and received from your suppliers.
4. Proactively identify accounting anomalies and root causes: Visibility into transactions and credits across your supplier base enables you to identify accounting anomalies that occur after a transaction is settled. For example, expired products that are returned for credit after a three-way match will be caught by a statement audit, but lost with traditional recovery or internal audits of AP records.
5. View statement auditing as an ongoing process, not a project: Transactional errors with suppliers occur every day. A statement audit typically kicks in after your AP processes have run through their cycle, usually 120 days, and finds anomalies that your organization has not resolved. Identifying and resolving issues on an ongoing basis, as opposed to an annual or biannual basis, helps you to maintain better processes and uncovers more money left with your suppliers. An ongoing four-month statement audit is a best practice.
Automated, comprehensive, and continuous statement audits drive continuous dollars to the bottom line by maximizing vendor recoveries across the breadth of a company’s suppliers and spending. This is a key difference from the traditional, manual statement audit methodologies. As a result, the automated process uncovers more recovery dollars by reaching a larger supplier population. It also speeds the results and delivers ongoing recoveries because it can be performed for a rolling period of time. Even more, by continuously cleansing supplier data, automated statement audit processes can be leveraged to benefit other corporate compliance initiatives and identify root-cause process issues with suppliers to reduce future reconciliation issues.
Executed successfully, automated statement audits can result in nearly doubling the recovery dollars for a company. That’s recovered money every company can use.
Joe Flynn is the CEO and founder of Lavante, a provider of on-demand management supplier management systems for connecting companies and suppliers.