Does your company have a policy against paying finance charges?  Do you know if suppliers apply credits to unrelated invoices?  Unless you are using a technology-driven statement audit recovery process, chances are high that both of these instances are happening out of sight and beyond your control.  Even if you have a traditional AP audit project in place, unless you are performing a deep-dive across the breadth of your supplier spend, I can guarantee that you are losing money to what I call creative credit application.

I base this on my 15 years experience as Director, Shared Accounting Services for Boise Cascade, and most recently four years as VP of Account Management at Lavante.  In both roles, I’ve learned the critical role that a comprehensive statement audit plays in assuring that you have full transparency into all credits due your company – from vendors representing the highest to the lowest spend.

Here are a few examples of the creative ways suppliers can use your company credits to their own advantage.

Example #1:  In the first example, a supplier took a portion of a larger credit, $392.83, and rather than returning the entire amount to the company, notes on the credit verification form that some of the funds were applied to cover an “outstanding finance charge. “  Not only is paying finance charges against that company’s policies, applying funds to an outstanding invoice poses other problems for AP.  If it is a real liability by that company, the PO and receipt will continue to accrue on a monthly basis if no invoice is presented.

Without a comprehensive statement audit, this creative credit application would have been missed.  And while $392.88 may seem like an insignificant amount, multiply this by thousands of other potential invoices, and these missed costs add up.

Here, the supplier applies a known credit to cover finance charges.













Example # 2:  Another instance where you are unaware of how suppliers are using credits involves using a known credit to pay a completely unrelated, and often disputed, invoice.  The typical scenario is when a credit is identified by the supplier and there is an unpaid invoice outstanding.  The supplier simply applies the credit to that invoice rather than refunding the dollars back to the company.  This second examples shows a supplier has done just that.  Applied a portion of a credit to another invoice, which in this case, was in dispute.

This credit verification shows that the supplier has applied to cover an unrelated invoice.














In both of these examples, it is highly unlikely that a traditional AP audit would find these credit anomalies, and the monies would be lost to the company.  Using a comprehensive statement audit process, which focuses on vendor statements rather than internal AP records, and that looks across the breadth of a company’s supplier base, is the only way to find many hidden credits which either go unresolved or applied to the benefit of the supplier.

For more information on how statement audits work, download the white paper, Statement Audits: An Untapped Source of Dollars for Your Company.