There is one corporate axiom that will always remain true — cash is king. And yet many companies let millions of dollars leak out every year. While many organizations believe their ERP systems provide the necessary filters to catch and prevent erroneous cash payments to their supply base, the fact is they’re not.
The reality is that a lack of people, time, visibility to the data, and ability to match key business information has created an obstacle to recovering erroneous payments. In some cases, companies have identified ways to recoup some of these lost dollars, but often the approach does not focus on prevention or improving controls within the processes to eliminate them in the future. Identifying working capital opportunities can be daunting as it usually involves large amounts of ERP data, contract data, supplier engagement and can tax already overworked resources.
Go where the data takes you
Cash leakage can happen at any number of junctures in the lifecycle without any visibility to the groups who manage that activity. There are opportunities to prevent cash leakage across the entire Source to Pay process from sourcing to contracting to purchasing order to payments. So how do you investigate and ultimately prevent the leak? The roadmap for success starts with data.
Sifting through large volumes of AP data, PO spend data, contracts, supplier statements, and other key inputs is very time-consuming and challenging. Most systems do not communicate or integrate with each other, leading to fault lines where control points are unintentionally circumvented. As a result, issues arise such as erroneous payments, overpayments, duplicate payments, lost discounts, rebates or missing out on contractual savings.
By putting the right tools in place, those that integrate, scale, and focus on the most common sources of error, organizations can take the first step to stem the leakage flow. The following are four key areas every organization should examine to identify, recover and prevent cash leakage.
Four opportunities for cash recovery
1. Spend forensics
Identify opportunities for sourcing savings by analyzing spend across targeted categories that allow you to find opportunities for quick wins (IT, facilities, cap ex, contingent labor, third-party spend, etc.). By focusing on this area, your organization can reduce the number of suppliers, negotiate better pricing, avoid maverick spend and streamline tail-end spend for sourcing savings.
2. AP post payment audits & recovery
This is a process by which an internal team — or with resources from a skilled outsourcing partner — will identify and recover erroneous, overpayments, duplicate payments, and other errors after the payment is made. The data used in the AP post payment audit can also be strategically used to improve AP audit controls. This allows an organization to be in a better position to move from recovery to prevention.
3. Vendor Statement Solicitation & Recovery
This involves organizing an AP audit team to communicate with suppliers to quickly identify opportunities for recovery. By working with a dedicated team or other expert resources, a company can quickly comb through millions of records to validate statement credits and find the root cause of the issue and recover owed amounts.
4. Contract audits
This is about leveraging analytics to “digitize” contracts, purchase orders and invoices. This allows you to systematically match data and prioritize analysis to identify key leakage areas and apply insights to recover funds. The end result is often redefining processes in a data-driven, process-based manner to realize valuable, sustainable cost reductions.
Getting to recovery fast
Various strategies can work for organizations beginning to assess these important focus areas. Some organizations work with one or more solutions partners while others choose to manage the work in-house. Some companies assign a task team of resources to help identify the areas of greatest opportunity, organize a recovery strategy and then chip away at the current leakage, while simultaneously working to fortify systems and processes to prevent future leaks.
A variety of advanced tools are available to help finance organizations take back control and address challenges presented by disruptions, complex systems, siloed businesses and moving targets. Technology features like interactive dashboards, intelligent analytics, machine learning and other advanced functionality are equipping finance teams to gain deep insights across their operations landscape helping them:
- Pinpoint duplicate payments
- Spot problematic process components
- Flag contract term that may be leading to overpayment
Core elements of a capital recovery solution:
- A seamless, multi-functional technology interface
- In-depth spend analysis and duplicate invoice identification
- AP post-payment auditing and recovery
- Solicitation and recovery of vendor statements
- Contract review/auditing
Now is the time to get started
Being able to capture, preserve and grow working capital becomes especially important — yet often more challenging for organizations — during unpredictable times. When organizations harness multidimensional capabilities to uncover cash, it can be a game-changer. Ensuring access to all a company’s working capital not only helps it secure the business, it enables resilience in the midst of disruptions. When organizations deploy advanced tools that deliver greater focus and time through integrated technology solutions, companies can stop the leak and pour more “lost” cash back into their business operations.