More and more businesses are turning to external vendors to support their core business functions, which means the number of invoices they receive has increased tremendously. For accounts payable managers, it can be difficult to ensure these invoices are all paid accurately and efficiently.
Unfortunately, invoice processing errors can lead to duplicate or erroneous payments — meaning your business is probably leaving unclaimed money on the table.
You might notice this opportunity when you spot an error in your records, or one of your suppliers alerts you to duplicate payments. At this point, you should consider running a recovery audit — but how do you start?
We’ve outlined some actionable steps you can take to help you recover any excess funds as efficiently as possible during your next recovery audit.
Decide: In house or third party?
Once you know you need a recovery audit, it’s time to decide if you want to do it yourself or hire a third-party service.
Manually performing a recovery audit on your own can be time consuming and tedious, but it might be the best option if you only have a few accounts to audit, or you have extra resources to spend on the process.
Hiring a third-party auditing service can make the process much more efficient by employing automated software to spot potential errors in your records. The recovery service will then contact accounts that have been flagged for recovery, and handle the process of reclaiming any excess payments.
In-house recovery audit
If you’ve decided to do your recovery audit in house, these are the steps you should take:
1. Narrow your scope
Not everyone in your system will be worth auditing. For example, it’s not usually worth the effort to audit transactions with charities, the board of directors, government authorities, or accounts that have been dormant for years. You’ll want to weed these accounts out of the audit before you even start.
2. Clean up your contacts
After you’ve decided which accounts you want to audit, you should clean up your vendor master database by updating the emails, addresses and phone numbers you have on file. After all, if you’ve been working with a vendor for ten years, it’s worth double-checking if they’ve moved their office before you start sending out recovery letters.
3. Know where to look
Before you can start really examining your payment data, you’ll need to know where to find it. If your data is spread out across multiple spreadsheets or housed in a clunky database, you’ll want to consolidate and export that data into a format that’s easy to work with. Your best bet is to start evaluating this data on a vendor by vendor basis.
At this stage, you’ll also want to decide the threshold at which you’re willing to review payments. To save time, for example, you might not want to audit transactions that are less than $1,000.
4. Know what to look for
Once you start digging into the data, you’ll be looking for:
- Duplicate payments
- Incorrect payment amounts
- Unclaimed credits and rebates on your accounts
Verifying false positives is the main hurdle at this stage, so you’ll need to be thorough when you suspect an erroneous payment; double-check that the payments you made weren’t for legitimate goods or services before you send out a recovery notice to your flagged vendors.
5. Contact your vendors
After you’ve determined which vendors you should contact, it’s time to request a statement of accounts so you can compare your records. Once you receive this information you can verify if your vendors have been overpaid, and request to recover any excess payments.
A manual recovery audit can take up to 6-9 months to complete depending on the volume of vendors in scope, but can be quite valuable in both recovering funds and streamlining your accounts payable workflow. However, it is much more difficult to recover the total amount of available funds in a manual recovery audit given the intense workload.
Third-party recovery audit
If you decide to use a third-party vendor, the recovery audit process requires much less heavy lifting on your part.
- To begin, the recovery auditors generate a list of potential accounts to audit based on your data. You can add or remove accounts from this list to suit your preference, but you should try to cast as wide a net as possible.
- Next, you should notify your entire employee base that the recovery audit process has begun. If a vendor receives a recovery notice and asks anyone at your company what it’s about, you’ll want to have a common answer.
- Then, the third-party vendor gets to work scanning your records. Automated software will help them efficiently and accurately discover:
- Duplicate payments
- Missed rebates
- Unapplied credits
- Vendor master errors
- Once these discrepancies are uncovered, the recovery auditors will handle any of the communications necessary to recover your funds.
The main advantage of a third-party recovery audit is the assurance that you have caught every discrepancy, no matter how small. Automated recovery audit software is able to scan thousands of accounts for erroneous payments, saving you time and returning your profits faster.
Don’t leave any of your profits on the table
Ultimately, the main goal of a recovery audit isn’t just to recover funds; you’ll also want to pinpoint weaknesses in your workflow that are contributing to leakage. With this information, you can optimize your accounts payable system to become more efficient overall.
Remember, no system will ever be perfect, but running regular recovery audits can help you close the gaps and keep your business as profitable as possible.
Interested in learning more? Download our whitepaper to see how you can hunt down duplicate payment errors and reduce false positives.