For 50 years, recovery audit has been a retail best practice. Retailers of all sizes, sectors, and geographies continue to engage recovery audit firms today because the process brings value in several important ways:
- Ensures retailers are receiving the supplier funding they have negotiated with their suppliers;
- Drives cash back to the retail bottom line by recovering overpayments and under-deductions that have occurred; and
- Identifies points of leakage to highlight opportunities for upstream process improvement.
While recovery audit is a long-standing practice, retailers and suppliers would prefer errors not occur in the first place. The ultimate objective of a recovery audit has always been to incorporate learnings from the audit, to correct the issues that cause recoveries, and prevent them from occurring going forward. Despite this objective, errors persist.
A sustainable approach toward error prevention will improve financial and operational performance for retailers and their suppliers. There are five primary sources of value that make this a compelling solution for the retail industry:
- Cost of Goods Sold (COGS): Error prevention will result in negotiated funding being reflected in COGS vs. post audit income.
- Administrative Costs: Reduction in post audit claims will result in less review and correspondence relating to claims approval.
- Time Value of Money: Getting it right the first time will ensure retailers are receiving supplier funding sooner vs. later.
- Supplier Abrasion: Reducing the claims deducted as a result of the recovery audit process will improve supplier relationships and reduce their costs associated with deduction resolution.
- Margin Accuracy: Reflecting post audit income into COGS will make downstream margin reporting more accurate.
The key to unlocking these sources of value lies in the ability to understand the root cause of the overpayments, the types of errors that can be prevented, and a comprehensive approach toward preventing these errors on an ongoing basis.
Want to learn more?
Check out the Reinventing Recovery Audit for Today’s Retail Environment white paper or webianr where we examine how the recovery audit process can transform from a postpayment audit practice to a prepayment and error prevention solution.