By Doug Hudgeon
The Cost Management Tip
It may seem surprising to those not intimately familiar with vendor payments, but large companies regularly pay vendors twice or more for the same piece of work. An easy way to improve your operating efficiency is to ask for that money back. It’s not difficult to find most of the recoverable duplicate payments and, provided the vendor is still in business, they always give it back without fuss (in my experience). This is such a tried and true method of generating cash that a small industry has sprung up to recover duplicate payments for large enterprises. These Recovery firms typically expect that they will find 0.75% in recoverable payments. This is an astonishing $750K on a $1B in AP transactions. You probably won’t get this much if you do it yourself but, if you haven’t done this before, don’t be surprised if you find $250K in duplicate payments on $1B in AP transactions. The tools and techniques used by these Recovery firms are often quite advanced but you can identify most of your duplicates without their services by following this simple process: 1. Get a data extract from your Accounts Payable system with the following fields:
- Vendor ID
- Vendor Name
- Payment Voucher ID
- Invoice ID
- Payment Amount
Start with a couple of years of data if you can. 2. Put the data into Excel and add a new column named Normalised Vendor Name and populate by stripping out spaces and non-alphanumeric characters from the Vendor Name field. For example, “A.B.C Inc.” in the Vendor Name column becomes “ABCInc” in the Normalised Vendor Name column. 3. Add a new column named Normalised Invoice ID and populate by stripping out the spaces and non-alphanumeric characters from the Invoice ID. 4. Add a new column named Normalised Payment Amount and populate by rounding to the nearest $10. For example, $33.24 and $34.55 both become $30. 5. Sort descending by Normalised Vendor Name, Normalised Invoice ID and Normalised Payment Amount. 6. Review the list and look for duplicate Normalised Invoice IDs with the same Normalised Vendor Name. These payments are usually duplicates. 7. Look also at Duplicate Normalised Amounts with the same Normalised Vendor Name. Most of these payments will not be duplicates but some may be. Related web sources I’m taking the easy way out here and simply posting a link to a google search for one of my favourite business euphemisms: Profit Recovery Firms. Related books
- Cost Recovery: Turning Your Accounts Payable Department into a Profit Center shows how to identify a company’s hidden financial assets.
- It provides tools to assist organizations generate cash recoveries, stop profit leaks, move away from control issues, and work towards process improvements.
- The book shows how to incorporate profit recovery technology, and how to pair a company with a recovery expert best suited to the company’s needs to achieve bottom line results.
- The book discusses how to utilize free services offered by cost recovery consultants, using of top money-saving proves improvements, and how to create a plan to maximize recovering technology.
Doug Hudgeon who is lawyer and vendor management professional who has branched into finance and accounting shared services management.