An increasingly prevalent trend in the last few years is the phenomenon of “disappearing credits.” This refers to a practice where your vendor takes old credits owed back to you and writes them off without your knowledge. The dollar value of these credits can be staggering — in some cases, they can even reach hundreds of thousands of dollars, and it reflects poor accounting practices on the vendor’s part. In the domain of recovery audits, where precision is imperative, addressing “disappearing credits” can have a massive impact on your end-of-year bottom line — so now is the time to act.
Companies process and pay hundreds of thousands of invoices annually. The processing rate is extremely accurate (the average error rate hovers around 1/10th of a percent). However, while rare, those fractional erroneous payments can turn into significant lost profits that may never be recovered.
With the onset of COVID and the shortage of manpower, suppliers are under increasing pressure to keep their books “clean” at year’s end. The vendors simply don’t have the time, or desire, to try to unwind the credits and debits (unrecorded balances, short pays, etc.) that are on their customers’ accounts. The solution is for the vendor to take those aged credits and debits and “net them out” with a reconciling journal entry with the difference being posted to either “Miscellaneous Income” or “Miscellaneous Expense.” Now, the vendor’s books are clean — to your company’s detriment.
Illustrating the tangible impact of this trend, consider the recent case that happened to a large healthcare organization that had engaged with Illumis for a recovery audit.
Their vendor, a large pharmaceutical company, had amassed 8 credit memos for flu vaccine returns totaling $193,000. Since these credits had aged over a year, the vendor decided to internally apply them to ”no-pay” purchase orders unbeknownst to our client. During a recovery audit with Illumis, these credits were identified and recovered. If we had not found the nearly $200K, it would have vanished, essentially taken as an expense reduction by the vendor.
Act sooner, not later. With the continued staffing shortages, your vendors may not spend the time to reconcile your accounts. Remember: there are always perceived competing priorities (ERP upgrades, acquisitions, software implementations), but one thing that is always constant is money potentially disappearing forever. Illumis is here to help. For more information regarding “disappearing credits,” or recovery audits, please contact us today.
Working for Illumis for 21 years, Brush has been instrumental in the growth of the company. Brush served as Vice President at Illumis before stepping into the role of President / CEO and has been involved in all aspects of the company’s business throughout his career.
Brush’s approach to his role centers on the motto of Illumis, Bright Ideas for Better Profits. Known for his loyalty, team building, and tough but fair expectations, he empowers employees to deliver, therefore fostering a company culture that ensures customers can count on people.