April 24th, 2010

Supplier Credit Recovery

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Supplier credit benchmarking from the front lines.

Every industry has its fair share of reports, surveys, data points, and sound bites.  The Profit Recovery industry is no different.  In the last few years we have performed quite a bit of analysis and benchmarking to uncovered some compelling data about recovering credits from your vendors and suppliers.

From a survey of over 100 clients and prospects, we have discovered that most traditional recovery providers sample only the top 5-20% of your vendor population when reviewing vendor-side credits.  Our survey elaborates (based on feed back from AP professionals) that without the aid of a communication compliance engine (Lavante is the only firm with such an application) traditional statement audit reviews, whether they are done by third party firms or by internal efforts, simply cannot support in-depth, comprehensive vendor penetration with manual methods and thus cap out at 20%.

Our supplier credit recovery benchmarking demonstrates that 61% of vendor credit opportunity resides in the lower 80% of your vendor file.  To put it another way, traditional manual methods will find, at most, 39% of credits available to you.

Another fact you may not be aware of is that 37% of supplier-side claims come from product returns.  This category is by far the largest we are tracking.  And it has huge implications not only to the existing processes you have for returns transactions, but also on where your profit recovery audits should focus.  In contrast, we’ve found that only 9% of supplier-side claims are the result of duplicate payments.  Keep in mind that these numbers vary depending on industry.

Some other interesting metrics indicate that the average claim amount from a supplier credit recovery review is $817 (with a range of about $400-$1200).  We have also discovered that the actual recovery potential for vendor credit recovery is $600,000 -$900,000 per $1Billion in addressable spend volume. Although we are the only recovery provider to project recoveries below the typical industry benchmark ($1M per $1B in spend) we feel confident that this carefully calculated metric passes both the scientific test and a gut test as well.  When we approach new prospects and we explain that depending on their industry they stand to recovery within this range that data is always well received based on what they have actually seen from other firms and not what they have been promised.

Based on our discoveries, we have also determined that for every month you do not perform an in-depth automated supplier credit review, you risk losing $63,000 per billion dollars of spend with no chance of recovering it.  While $63,000 may not be a huge amount for you, if you spend multiple billions of dollars and delay just a quarter’s time, that $63,000 figure becomes a very large sum of money.

If you have any more questions about our benchmarking survey please join the conversation…

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