Between juggling daily tasks and projects, adding something else to your already full plate can feel daunting.
While you are busy, your suppliers are too. However, their goals can be quite different than yours. They are often tasked with cleaning up accounts. This cleanup can lead to misapplied payments, credits being adjusted off to suspense accounts, and an environment that can make it more difficult for you to identify and recover your money.
Now is a good time to take a thorough examination of your suppliers.
Active cleanup of your suppliers can lead to an increase in misapplied payments, aged credits being written off, credits being moved to suspense accounts, and a rush to process returns (and the associated credits).
Misapplied credits are a frequent and unfortunate occurrence in which suppliers will place credits in an unrelated or unintended account instead of the proper account of the beneficiary. Thousands of dollars are being lost in these important misapplications of credits both large and small.
During a thorough accounts payable review for one of the world’s largest rental providers, our analysts uncovered 14 instances where duplicate payments occurred due to a supplier with multiple supplier IDs. These payments created credits with the supplier which were then misapplied leading to a recovery of $28,716.
Unapplied cash and the resulting credits may often have an expiration date limiting your ability to recover and use the funds. The rules can be different for each supplier with some at year end, or after one year, and still others that may be more frequent. Our analysts performed a recovery audit for a Fortune 500 semiconductor company and identified expiring credits that were not being tracked. From this, we were able to alert the company and save them from missing over $500,000 in supplier credits.
Money can be moved to suspense accounts and your statements show no credits. During an initial query from our analyst, a supplier responded that there was a zero balance on the account. Knowing that very often suppliers maintain certain transaction types separate from customer accounts the analyst continued to ask questions and with this response from the supplier, “I dug into this a bit more, because we do audit our receivables periodically and place credits into a separate account, as you probably were guessing based on your questions” was able to identify and recover $64,000.
Most organizations have standard procurement processes that focus on purchases of goods and services. But what happens when an item needs to be returned to a supplier? Very often returns are handled outside of the standard process creating an opportunity for credits on returns to be lost, resulting in unnecessary expense.
Due to an informal return policy, a Fortune 500 telecommunications company was not always aware of when credits were issued from returned consignment materials. This created a lack of visibility and an inability to track the resulting credits. Because the supplier did not tie the returns back to the original invoice the credits would age out of visibility or be lost. Through diligent research, our analysts identified this issue, located the hidden credits, totaling $900,309, and were able to get them placed in the proper account for use.
With the original shift to remote working and now to either a remote hybrid or a complete shift back into the office, a change in the quality of relationships between client and supplier is becoming more and more apparent. An internet world and an online-centric business model can make it difficult to make a personal connection.
Having someone take a complete look at your suppliers has never been more important. You need the ability to look beyond your data at information that only your supplier has – things you cannot even see.
A recovery audit is the process of systematically reviewing a company’s disbursement transactions and other data to expose any overpayment to suppliers. Ultimately, the goal is to recover “lost” or misplaced money.
On the other hand, a compliance audit determines how well an organization’s suppliers are following the letter and intent of their agreements. This audit can also identify items such as inaccurate pricing, payment terms, and discount opportunities or whether service levels and any associated credits are being met.
An audit doesn’t need to be stressful. Conducting an audit now will save you money down the line and set you on a new path for success. It is an effective and easy way to improve your business and support growth moving forward. The Illumis Global audit implements technology along with human discovery to ensure the best results.
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.