Bottom Line Tip #10: Capturing lost profits

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During these tough economic times, it is more important than ever for organizations to search for savings opportunities and ways to be more efficient. Procurement has acquired added spotlight, with firms seeking quality and transformational initiatives to derive a greater bang for every dollar spent. One quality initiative - reducing supplier payment errors - provides real dollar savings to organizations as well as improvement in the accounts payable control environment and accuracy of the payment transactions.

“US companies have an average payables error rate of between 0.1% and 0.4%.”

Source: Cashflowguardian.com

This rate is minuscule in terms of percentage, but can have a significant impact on an organization’s bottom-line, when factoring in an organization’s total spend. The error rate of 0.1% on $1 billion of spend is a recovery of $1 million.

Sources of lost profits (errors) include rebates (which typically represent the largest percentage), material returns, pricing changes, duplicate or wrong payments, and refunds. Factors that contribute to payment errors include multiple master records for one supplier, “rush” or non-standard payment flows, multiple invoice receipt processes, and multiple payment platforms within a region.

A two-pronged strategy should be adopted to stem the leakage of profit through payment errors:

• Technology. At the technology level, most of the enterprise solutions such as SAP have built-in criteria or logic to prevent the processing of duplicate payments. The complexity of the errors in the supplier payments requires an in-depth understanding of the supplier invoicing conventions, magnitude of errors based on the sample or previous audits, severity of the errors and control lapses.
  

• Trained human intelligence. However comprehensive the criteria and logic is in the enterprise solution, there will still be payment transactions that do not meet any of the criteria and yet potentially be an erroneous payment. This is where human intelligence plays a vital role, by performing a comprehensive transactional analysis on the supplier payment history to identify the overpayments with the help of trend analysis, reversal analysis and purchase order analysis.

Utilizing HP’s Payment Recovery Services with our proprietary technology and deep domain expertise can help you capture lost profits and improve the controls in your procure-to-pay process to prevent future errors.