The Article features conversations with executives from Lavante and Ariba discussing how their firms are creating new cash flow metrics that are helping financial executive watch there bottom line a little more closely.

Joe Flynn, CEO of Lavante discussed how Lavante’s DCO metric (which measure the weighted average of days that a credit is outstanding until it is collected by an enterprise) has become an important tool for companies to maximize the cash flow associated with recovery auditing.  The article includes the following quote from Flynn, “Everyone’s saying, ‘Wow, I didn’t know you could actually track that.  There’s a whole host of line items of credits you’re not aware of out in your supplier population. It’s like your working capital trapped in your supply chain.”

The article also highlights a conversation with Peter Lugli, senior director of working capital management and business development with Ariba.  Lugli discusses the “cash conversion cycle” in depth and adds,  “There’s this renewed emphasis on the cash conversion cycle.  The CFO and controller are looking at their operations through the lens of cash flow more than they did before.”

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Lavante Recovery is the industry’s premier statement audit product.  The Lavante Recovery application and services are built on the industry’s most powerful platform for communicating with suppliers, collecting AR data, discovering credits and delivering recoveries to clients.  Lavante Recovery targets the entire addressable supplier population without bias and commonly achieves compliance rates above 90%.  It is systematically impossible for any other competitive statement audit process to out-recover Lavante’s process.

Lavante’s outreach includes initial and ongoing requests for AR data as well as follow up requests for non-compliant suppliers.  Follow-up requests alternate by email, fax, mail and phone to maximize exposure and response rates.   Lavante electronically archives all incoming documentation and data per supplier per client for retrieval at any time. Dedicated auditors review all documents for potential credits and communicate directly with the supplier to secure written verification of all claims.  Recoveries are delivered to clients via an on-demand application in weekly batches accompanied by supporting documents and communication detail.

Based on ten years of benchmarking, Lavante has determined that 61% of credit-generating suppliers are distributed throughout the lower 80% of a company’s addressable vendor master file.  Through their expansive review, Lavante delivers clients between $600,000 and $900,000 per every $1 Billion audited.  In addition, Lavante delivers a complete suite of supplier reports and best practice recommendations for vendor file management.

The biggest challenge to maintaining the quality of your supplier data is its near immediate decay after being recorded.  Suppliers constantly undergo mergers, purges, acquisitions and employee churn that challenge the integrity of their data.  Dun & Bradstreet (D&B) reports its database of businesses experiences annual changes of 20% for addresses, 17% for business names, and 18% for phone numbers underscoring how quickly and frequently supplier data decays.  ERP systems perform some data quality measures at the time a supplier is set up, but they do little to preserve the integrity of the data over time.  ERP systems are reliant on quality data, but they do not ensure it.

Allowing your supplier data to decay over time is very costly to your enterprise. Inaccurate data delays implementation of ERP systems and other automated solutions and can prevent those solutions from achieving their optimal ROI, effectiveness or their value over time.  Failure to identify overlaps or relationships within your supplier population can lead to missed volume discounts or rebates as well as an increase of duplicate payments by up to 300%.  Poor supplier data quality is also very costly in terms of lost efficiency and time.  Bad addresses alone can lead to miss-sent shipments and checks.  Quality supplier data is also vital to stay in compliance with various external regulations and internal controls.  Failure to achieve this compliance can be both disruptive and very costly while causing great exposure and risk.

Collection and management of supplier data is more important now than ever.  New 1099 tax legislation included in the funding provisions of the Patient Protection & Affordable Care Act (March 2010) requires companies to collect valid Tax Identification Numbers (TINs) on a much larger scale than pre-legislation levels.  Today most companies are expected to perform 1099 reporting for less than 10% of their supplier population. When the new law takes effect, companies can expect reporting levels to rise above 90%.  Companies will need to implement new policies and potentially even new systems to manage supplier information more accurately in pursuit of staying in compliance.

The question arises: How are you going to ensure the ongoing quality of supplier information to achieve optimal project ROI and on-going efficiency while maintaining compliance with controls and regulations?

Check back for part two.

Eric Jones, the Director of Corporate Payable from Lowes echoed many of Andre’s sentiments by admitting that 15 years ago his staff may have been “pounding a keyboard,” but now they were expected to critically access transactions.  This change certainly underscores the migration from transactional focus to value focus, although Eric did add deep perspective to the  room when he relayed that his entire team back in North Carolina all live by one simple Wildly Important Goal. (WIG) Eric stated that if asked, everyone one of his team would state the department’s “WIG” is to “pay the right amount to the right people at the right time.”  This elegant battle cry speaks to why Lowes’ payables department is a world class operation and it bridges the two ends the discussion.  Paying the right people the right amount at the right time requires both transactional excellence and critical thought and as you further refine your definition of the word “right” you can begin to deliver more and more value to your organization.

Panelist Sherry DePew VP, Customer Development with Lavante spent her previous life running the Shared Services department at Boise Cascade and added that hiring good people was paramount to the success of her AP departments ability to move from transaction-focus to value-focus.  Her ability to hire talented and hard working people served her almost too well.  She said that in time her department was almost looked at as a farm organization to the larger corporation.  Becoming a top performer in an environment which requires you to drive value buy paying bills helps professionals to develop valuable skills and many of her best team members were quickly snatched up by other departments.  Andre agreed immediately and said he has long viewed his department as an “incubator” for his organization.  This point was universally received and many voices from the crowd shared their own pride and frustration about similar issues that they are dealing with.

A panelist on another topic, Susan Trevisano of LMI added, from the audience that in her experience she has seen the successful use of a passport system for employees.  Expected to pass through many different departments, talented workers can build business muscles by learning from many different departments and ultimately add more value and perspective when they ultimate take up residence in one single department.  The panel agreed, specifically Andre who responded by saying he encouraged his staff to spend time understanding the pain of vendors and internal customer.  He specifically said to understand why these groups would ever ”cry out in pain.”  Understanding the pain points of your constituents is good for empathy and good for business.

Unfortunately the panel was cut off after 90 minutes and could have countined indefinitely.  It is remarkable how many among the capacity crowd were asking questions and contributing insights.  It was also interesting how many in attendance actually described what they saw as the role of AP and asked the room  to critique or correct their perspective.  The room had a very raw and honest feel and comments in the hallway during break were openly appreciative that some many industry leading companies would assemble top finance officers to discuss such an under the radar yet significant issue.

When one panelist asked aloud if the room was engaging successfully in the practice only about 3 hands when up all the way…  there were one or two of those “half-up-but-not-really hands.”  I will not call anyone out but among the firms successfully using dynamic discounting were two large fortune 50 stalwarts.  Even they had to admit that they targeted vendors were of a select group and that procurement was still very much debating if they should negotiate longer terms and stay away from the early pay discounts.

Just thought I would shed a little light for those in the crowd that think they missed this train.  The conclusion:  People LOVE the idea of a successful dynamic discounting program and this topic has major buzz, but like most things… not many people can really sustain the practice and it remains in “when-I-have-time-to-get-around-to-it” limbo.

Please comment if you have plans to make this practice work internally or if you have input on the topic.  Would love to get more data on this.

In addition to record attendance, five guided service provider tours and a blockbuster announcement about the merging of IAPP/IARP & TAWPI, FUSION 2010 also saw the introduction of a brand new track specifically designed for CFO, Controllers and Directors in Shared Services.

The track was conceived almost a year prior to FUSION 2010 and required the successful alignment of many moving pieces.  IAPP’s annual conference has long been considered an event for AP professionals, managers and supervisors.  To its credit the yearly networking and educational bazaar has become the premier event for all things AP and has consistently delivered payables professionals the necessary tools needed to keep up with best practices and excel at their roles.  Unfortunately the event did very little to help dispel that silly little question that has been plaguing AP pros for years, “what’s so difficult about AP?  It’s just paying bills, right?”

Expanding on the years “FUSION” theme the Master Session aimed to create a track that would speak to the combined Master’s audience and planned to placed much emphasis on Shared Services topics with a consistent focus on Accounts Payable themes.   If done correctly the track was intended to discuss AP issues at a level which would be relevant to both the CFO, the AP Manager and all stops in between.

A task force of service providers and financial professionals was assembled and after months of much hard and many iterations the group finally delivered an all-day session consisting of five panels comprised of 4-5 experts.  Topics included:

• The Top Ten Best Practices of Shared Services
• The Changing Role of AP and AR
• Metrics and Benchmarking in Accounts Payable & Shared Services
• Compliance Management
• Selecting the Proper Service Delivery Model for your Department

 (check back for part 2)

The Short Answer:

It takes very little of your time or resources to support a Lavante recovery audit.  All you need do is send a basic vendor file and dedicate one employee for typically an hour per week.

How is this possible?

To begin an audit: Lavante can get started working from a data file that in many instances requires less than an hour for clients to generate. AP typically can create the data file Lavante needs and client IT does not need to get involved.  This is all that’s required for a full recovery audit.

To support an ongoing audit: Clients working with Lavante typically require less than one hour per week to receive and upload verified claims and vendor file updates into their system. No onsite Lavante personnel are ever needed to support the effort.

Clients who wish to save additional time can work with their Lavante Account Manager to integrate claims directly into their ERP system.  Lavante will automatically match claims against an internal credit listing, thus pre-checking the credits and enabling clients to upload credits directly as ledger entries with no manual intervention.

Lavante InSight™

For companies concerned about the time commitment or skeptical of the potential benefits of performing a recovery audit, Lavante offers a way for clients to test and sample the service before fully engaging.

Lavante InSight™ gives you a view of the recovery audit you might have. It generates an estimate of the likely cash recoveries and vendor updates you will receive if you choose to engage in a Lavante Strategic Recovery audit. Utilizing your master vendor file, InSight leverages Lavante’s extensive database of historical audit detail, a proprietary, on-demand software application and our Supplier Network of over two million companies to develop a comprehensive vendor and recovery analysis. InSight previews potential cash recoveries, duplicate and related vendors, recovery projections over time, vendor updates, and more.

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.

#13 of 30 – JPD Financial

General Information: 

In business since the 80′s JPD Financial is a private firm in the recovery audit space that focuses on vendor credits.  They work off site, away from their clients’ facilities and drive their recovery by communicating in mass with their clients’ vendors.   They are compensated on a contingency fee of their recovered claims.   They serve F1000 and F500 clients across multiple industries. Well established in the industry, JPD Financial is a frequent attendee at many different industry events such as IAPP’s annual conference and IQPC/SSON Shared Service events.

IQPC /SSON is the largest and most established community of shared services and outsourcing professionals providing the roof under which key industry experts and organizations share their experience, knowledge and tools.

Analyst’s Note:  JPD’s offering has similar functionality as Lavante’s Strategic Profit Recovery application.  Departments considering JPD’s product are recommended to compare Lavante’s software.

1. BancTec
2. American Express
3. Paystream
4. Deloitte
5. Read Soft
6. Approva
7. PRGX
8. Oversight
9. Basware
10. Winshuttle
11. Cast Iron
12. Coupa
13. JPD Financial
14. Scan-One
15. Ariba
16. Emptoris
17. SAP
18. Oracle
19. Lavante
20. OB10
21. IOMA
22. Kofax
23. IAOP 
24. Interplx
25. IAPP
26. AP Now & Tomorrow
27. Apex Analytix
28. Y6Sigma
29. HorsesforSources
30. ACS

I’d like to elaborate a little bit more on the story for the Lavante watchers in the audience.   Our new grade A facility is in the Santa Teresa area of San Jose and the property manger tells me it is over 26,000 square feet!  I do not want to risk a blister trying to walk through and measure it myself.  We plan to have our entire operation moved over in a couple months, but we are in the middle of three major trade events in the next month and we are rolling out a brand new product in three weeks so some of us are having a hard time packing our boxes.  (uh-oh… more phone call and emails from that “new product” teaser I am sure)

Regarding new business… how do I put this?  As the articles inicates, Q1 was a record quarter, but we’ve nearly already beat it in April alone.  Yes you read that correctly.  Clients are closing more quickly and they are growing larger in size…  In 2010 we have begun workng with three of the largest private companies in the U.S. and our new public clients are averaging a Fortune rating of F297.

I hope that answers any questions, but I am always available to discuss further.