For those that are not familiar, Rich Lanaza has a great website called findmillions.net that discusses a number of aspects of the recovery audit industry. Specifically he has a few pages outlining the benefits of the services as well as the top questions people should ask when considering an audit.
Our own website will soon grow to include many of the things that Rich is doing for consumers. For now you can see what is currently available at: http://tinyurl.com/ydzgcbc
Updated: In my humble opinion the Profit Recovery industry does not get enough credit (no pun) for the value they provide. Analysts do not cover the space and most media outlets and publications glance over the topic.
Before and since my original post I have made it a personal mission to reach out to different journals and periodicals in the AP space and challenge them to cover recovery audit providers. Many of us are newsmakers. I have been quite pleased with the feedback and the growing coverage. Sometimes it only requires a few friendly phone calls.
Admittedly the Profit Recovery industry may not be the most exciting, but it does offer a very direct value to clients. Assume a Profit Recovery firm finds $100,000 for your company. Consider what number of sales or what amount of effort would be required to generate that revenue. In most cases, Profit Recovery delivers dollars to an enterprise with one of the most favorible ROI’s possible.
A few weeks ago PRG rang the bell at Nasdaq and as they are our primary competitor the occasion did not go unnoticed. Rather than feel any envy, I was actually thrilled for them and for us as a result. Any major publicity that they earn is easily translatable into publicity for the Profit Recovery space. I still believe, based on overwhelming evidence from our audits, that recovery auditing is alive and well. I am glad when that message is reinforced.
In one of my recent briefings with a fairly major analysts I was told that PRG’s decision to migrate slightly away from recovery makes the conversation more interesting. A company like Lavante is investing in software to further tap into what we believe to be a rich recovery vein when other firms are moving slowly away.
I have noticed a pretty compelling trend as it relates to our sales cycle and trade shows.
Most shows in the AP space place a heavy emphasis on attendee education and offer a number of tracks for everyone to attend and learn about the latest trends in the Accounts Payable. All of these shows accept sponsorship from service providers and create a forum for professional in the space to interface with service providers to encourage education about service providers’ offerings.
The most common type of attendee/sponsor interaction is a tradeshow floor which as most of you know consists of colorful booths and clever give aways. Shows which offer these types of forums are very helpful and always fun. Another type of interaction are the shows that, in favor of a tradeshow floor, offer a series of one-on-one meetings between professionals representing major corporations and service providers. These shows are typically smaller and have a very different feel about them.
SO why am I bringing all this up? In our business we usually experience a 120-150 day sales cycle. That is to say, it takes about 4-5 months to meet a new company, educate them on our software products and begin doing business with them. This average is actually good for our particular market, but it is certainly not the fastest sales cycle.
An interesting trend has been revealed; when we attend typical trade shows we close business in our average sales cycle, but when we attend shows with one-on-one meetings we drop our sales cycle down to 60-75 days. In other words when we meet with buyers and show them our software on “day one” they buy from us in half the time.
It has ocurred to me that this particular blog may be better suited for a marketing blog, but I think this empirical data says a lot about the AP industry. I believe professionals in this space are open to adopting new technology, but it is sometimes difficult to convince buyers that we have a new and unique approach. A lot of providers are using the same phrases, ”faster,” “new techology,” more recoveries,” etc. In most cases the first half of the 120-150 day sales cylce is convincing the buyer that we really are different. When we finally get that point across and we earn the right to demonstrate our software… that is when the sale begins to accelerate.
Most AP professionals are well aware of the environmental benefits of moving to online bill payment. The same benefits, not surprisingly, apply at home. Just by moving to online bill payment, a household can save more than six pounds of paper and cut greenhouse gas emissions by 171 pounds annually, according to a recent study by PayItGreen, a partnership between financial institutions, financial industry service providers, and businesses. Among its founding members are Wells Fargo, Fiserv, J.P. Morgan, and The Clearing House/EPN. NACHA, or The Electronic Payments Association is the managing partner of PayItGreen.
What’s more, the individual savings add up. If just two percent of all households in the U.S. shifted to electronic billing and payment, more than 15 million pounds of paper and 390 million pounds of greenhouse gases would be saved annually, the study found.
To be sure, PayItGreen has an incentive to promote online bill payment, as many financial institutions save money when they work with customers electronically, instead of via paper. However, other studies have found similar benefits. A 2007 study by Javelin Strategy & Research, San Francisco, also found that moving to online billing offered compelling savings. By their calculations, if all U.S. households viewed and paid their bills online, the country would save 2.3 million tons of wood, or 16.5 million trees. On top of that, greenhouse gas emission would drop by 3.9 billion pounds – the same as taking 355,000 cars off the roads.
Have you moved to online bill payment at home? Why or why not?
Recovery Auditing Misconception #1 of 4: There aren’t enough recoveries to justify the effort
The short answer:
You don’t know what you don’t know. Especially if you don’t, or can’t look. Often, companies that we speak with have been underwhelmed by the volume of recoveries that traditional profit recovery firms have identified in the past, so they don’t believe there’s much money to be recovered. They don’t realize they’re looking at only the tip of the iceberg. Lavante’s approach delivers expanded levels of recovery because Lavante does a much more comprehensive audit and thus reviews a completely different set of data than traditional firms can. This generates a completely different result.
Why?
Unlike traditional firms that primarily review historic client AP records, Lavante’s method focuses on opportunities beyond AP records and delivers a higher yield as a result. Lavante begins with an exhaustive review of vendor AR statement data. Where traditional firms review a sample of vendor records, Lavante leverages its proprietary communication application to correspond with virtually all of client’s active vendors.
Comprehensive vendor communication leads to significant opportunities for profit recovery in three major areas:
1) Although recovery totals are generally weighted toward larger vendors, our experience has shown that the lower 80% of the population (on the basis of spend) represents 61% of the vendors with credits. Since others don’t typically communicate with these vendors, these credits typically go unrealized. (see sidebar)
2) Communicating directly with vendors enables Lavante to manage and clean the client’s vendor file – fewer duplicate vendors leads to fewer duplicate payments. Moreover, establishing the links and relationships between vendors opens the door to negotiate better pricing and terms across what may otherwise appeared to be unrelated vendors.
3) Once Lavante establishes links and relationships within the vendor population, a more comprehensive duplicate payment AP review can be performed.
The AP Alliance program is available exclusively for IAPP partners to engage further with the accounts payable profession. It assists in leveraging relationships with your clientele by enhancing your credibility and commitment. It’s not only about investing in IAPP – it’s about your commitment and passion to advocate the AP profession! More details from the IAPP website:
If you’ve been wondering about the status of the job market for individuals with expertise in accounts payable, Indeed.com, an online search engine for jobs, has some fun charts and graphs that get at this question.
Starting with the broader field of accounting, Indeed.com shows a 10 percent uptick in postings for accounting jobs over the past year. That’s good news, although it should be noted that clicks on accounting jobs – presumably, by individuals interested in pursuing these positions – jumped by nearly one-third over the same period. In fact, the ratio of accounting job postings (125, 000) to clicks (4.3 million) was a stiff 1 to 34 as of February 2010.
Looking more specifically at accounts payable, it appears that job postings have declined slightly over the past five years. According to Indeed.com, the percent of job postings matching the term, “accounts payable,” dropped from about 1.2 percent in mid-2005 to .75 percent in January of this year.
Even so, the level of competition for all the jobs available, both in and outside accounts payable, varied considerably from one city to the next. In Washington D.C., the ratio of job openings to unemployed people was one to one. Job hunts are a little tougher in Seattle and Milwaukee, where three people are unemployed for every opening. In Detroit, things get even more precarious, with 14 people unemployed for every job that’s open.
The fastest growing job trend? That would be Twitter, the micro-blogging platform. In January, the term “Twitter” matched about .4 percent of job searches, up from zero in early 2007. Other terms among the top ten most searched were cloud computing, iPhone and Facebook.
Days Sales Outstanding (DSO) and Days Payables Outstanding (DPO) are important, widely used metrics to manage working capital. Financial managers monitor these statistics very closely and regard them as key performance indicators as they work to maximize overall cash flow as well as transactional efficiency. Through our audit work communicating with extremely large numbers of vendors for Fortune 1000 enterprises, we have begun delivering significant value to our clients based on a new metric that measures and standardizes an important aspect of accounts payables financial efficiency – Days Credits Outstanding (DCO).
DCO focuses on open credits that are typically not visible to your internal accounting personnel. Specifically, these credits are aging on your vendors’ and suppliers’ receivables ledgers and, for a variety of reasons, may be outside of your books, or at least not specifically identified with the vendor. DCO measures the amount of time that outstanding credits are open and available on your vendors’ accounts receivable records before you are able to actualize them as cash to your bottom line. Allowing your DCO to grow means your cash inflow is being delayed. Given the time value of money, this represents lost cash, even if eventually you do recover the credits.
While aged vendor-side credits are sometimes known to your company, more often they’re not; they’re essentially unseen or lost dollars. In fact, based on over a million data points, Lavante research indicates that after an open credit has aged over 90 days, you have less than a 20% chance of recovering that credit without third party intervention. These “lost” dollars add up and can grow to a staggering one and a half million dollars per every billion dollars spent. Tracking DCO enables your company to bring the management of these dollars in line with your existing standards for managing working capital.
In addition to cash timing implications, it is also important to consider the financial exposure that increased attention to DCO can reveal about your company. A growing DCO is an indicator of risk because there is a proven likelihood of vendors using unreturned credits to offset unearned discounts and disputed invoices, or otherwise disposing of them as they age beyond a reasonable period. Ultimately, unclaimed credits that are not used by the vendor are escheated, that is, turned over to the state. In all of these scenarios, you are losing the cash forever. A focus on DCO will help bring visibility to the dollars outstanding while driving the age of these items as low as the aging scope cut-off of your audit will allow.
The introduction of DCO as a key performance indicator is significant because it adds a new measurable element to cash management. It encapsulates the fact that not only is it important to actualize all open credits, but it is also important to realize these dollars in the fastest time frame possible, thus maximizing cash flow. The cash flow implications of DCO are as relevant to cash management as preventing early payments, or even taking all of your discounts.
Lavante, with our unique ability to comprehensively collect and analyze vendor-side AR records and thus uncover these “lost” credits, is calculating the DCO metric as part of our audits. Our clients use it to help them manage their cash flow and as a key indicator of the transactional efficiency of their accounts payables process.
Happy St. Patrick’s Day. I always enjoy this holiday. I love that everyone wears green and speaks openly about leaving work early to make it to happy hour on time.
Today has been a fantastic and festive day and was capped off about 20 minutes ago when I received an unexpected call from a client of mine . Let’s call him “Don,” he is a Shared Services Director for a F500 manufacturer. Don called out of the blue to say hello, to wish me a happy St. Patty’s day (one Irishman to another) and to pass along a thought that had to occurred to him last week. I have to warn you this is reeeeally corny, but flattering at the same time. If you have a low tolerance for corniness… do not read any further.
Don suggested that Lavante should run a St Patty’s day promotion. He has been using our profit recovery software for over two years and by his own account it is more effective than any other profit recovery solution he has ever used, and he claims to have “used them all.” (by our metrics we have delivered over 3 1/2 times his previous provider – on an annual basis) His point is that we deliver a “pot of gold” at the end of the rainbow. (corny but true) His analogy included a bit about our logo having all the colors of the rainbow… I’ll spare you any more details than that. I was so touched that he called out of the blue to say hello, to ask about my daughter and to compliment Lavante. Put yourself in my shoes… this is a great feeling. I have worked my tail off for this customer and he makes it worth the effort.
I love when customers feel this way!! and I love when the work relationship really works. Don thinks that he has a “pot of gold” because our profit recovery totals are high. I think I have the “pot of gold” because I have customers like him.
Thanks again buddy….
As you probably know, accounts payable departments need to obtain taxpayer identification numbers (TINs) from vendors before paying them. TINs are identification numbers the IRS uses in the administration of tax laws, and are issued either by the Social Security Administration (SSA) or by the IRS, according to this article on the IRS’ website. However, vendors aren’t always diligent about providing their TINs or making sure that the ones they do submit are accurate. Even so, if your firm fails to provide the correct one on its tax returns, it risks receiving B-Notices. Here are several tips to help you avoid that:
