Supply chains are global now, which has led to many organizations having vast supplier networks that span continents. According to McKinsey, the average technology company has 125 tier-one suppliers, and the average auto manufacturer has 250 tier-one suppliers. Companies across industries have a huge supply chain connecting them to various countries. While this is good because it means companies can source different products and materials in more affordable ways and fuel different economies, it also makes supplier management difficult.
The more suppliers a company has, the more confusing and tangled its supply chain can become. Even if you aren’t experiencing supplier issues, certainty and clarity are crucial. The better you understand your supplier network, the less risk you are taking on.
That is why many enterprises decide to undergo a recovery audit. This process is designed to increase visibility into supplier networks and improve accounts payable processes. Below, we’ll explore what exactly a recovery audit is, why businesses need them, and how automation improves this process.
A recovery audit, also known as a payment or supplier audit, is something enterprises do to remove payment confusion with their suppliers. This process is an absolute must for businesses with hundreds or even thousands of suppliers across a diverse network. Enterprises review their financial transactions with suppliers, hoping to spot any overpayments, deduction opportunities, pricing errors, or more.
It is essentially running a deep-dive accounting process that investigates your financial relationships with suppliers. Even if you wholeheartedly trust every part of your supplier network, a recovery audit is still a crucial part of the process. It’s an important way to spot mistakes like billing errors, discounts that weren’t received, improper payments, and more.
The goal of a typical recovery audit is to spot any financial leakage that may have gone overlooked. It can be challenging to keep track of all your financial transactions with a large supplier network, even if you have been vigilantly monitoring accounting. A recovery audit can improve your bottom line by finding mistakes you hadn’t even considered. Most companies run recovery audits at times of significant change, like a merger or system upgrade, but businesses should do it regularly.
There are many ways for enterprises to run a recovery audit. Some hire a Recovery Audit Contractor, or RAC, to look through their books. Others use digital systems that monitor transactions for them. But regardless of the method, the goal remains to improve transparency in supplier networks and spot financial oversights.
Transparent payment transactions are crucial across industries. It is doubly important with a global supply chain where enterprises are at relative risk. The more suppliers you take on, the more exposed you are to potential fraud. Recovery audits help you identify issues with suppliers and find out whether or not that relationship is being honored. It’s important to be aware of mismanagement or breaches of trust so that you can implement necessary changes.
Improving transparency in your supply chain is vital, especially since many modern enterprises have struggled to achieve this. According to Reuters, over half of all companies lack end-to-end transparency in their supply chains. The more visibility you have into your supplier network, the less exposed you are to risks.
Recovery audits help untangle the knots that often crop up with big supply chains, leading to improved visibility and a clearer sense of which suppliers are trustworthy and responsible. This, in turn, improves an enterprise’s bottom line.
These audits are a key step to becoming a more efficient organization. Identifying flaws in your processes and oversights that are continually arising is the first step to implementing long-term changes that solve these issues. They are a way to build better internal and external processes that reduce exposure, keep suppliers honest, and ensure that financial leakage is noticed and addressed.
Many businesses today deal with vast, difficult-to-wrangle supply chains. This is why it’s more important than ever to have a clear grip on how every dollar is being spent. It’s easy for money to get lost in the sheer size of a supplier network. But, with recovery auditing enterprises can ensure contracts are honored, vendors are responsible, and no dollar goes to waste.
Account Payable, or AP, is a key part of financial management in the business-supplier relationship. It is how businesses understand their liability and financial obligations to their suppliers. AP teams are the primary party responsible for overseeing the financial relationship between a business and its suppliers, and establishing smart AP processes is the key to removing financial bloat.
A recovery audit is a crucial step toward building AP processes that are lean and efficient. With recovery audits, AP teams can run root-cause analyses where they gain a higher level of understanding of where things may be going wrong. Then, they can implement the necessary controls to ensure these issues don’t continue. Having centralized electronic resources for AP processes is important, as it allows enterprises to access their data from a single point of contact rather than having to pull from disparate systems.
Efficient Accounts Payable processes are part of successful supplier management. The better AP processes, the less likely enterprises will have money disappear into their supplier network without realizing it. Recovery audits are a crucial way to input the controls that mitigate risk and learn from previous mistakes.
For enterprises that want to run a recovery audit but don’t want to invest in a Recovery Audit Contractor, there is software that can handle these tasks for businesses. Automating your recovery audit will allow enterprises to save time and resources while still ensuring they see the same benefits that a deep dive into supplier financial transactions provides.
Allocating the time for a financial department to perform a huge recovery audit is a substantial investment of resources, given that most enterprises have a lot on their plate. Recovery audits can be time-consuming without the right resources. If you have the right automating tools to help manage this process for you, that time can be allocated elsewhere. Similarly, hiring a RAC is a big financial investment, and a one-time recovery audit isn’t necessarily a long-term fix.
That is why implementing a solution that can help manage and automate recovery audits for your business long-term is the smartest investment. This saves enterprises time and removes the need for multiple recovery audits from RACs. Automating also makes sense because collecting a vast amount of supplier data is incredibly difficult and time-consuming. So, if you run your supplier transactions through one central database, collecting this information is simplified.
Automating AP processes can help teams do more with less. According to MineralTree, 64% of companies that have implemented end-to-end AP automation are processing more invoices with the same-sized team. Automating recovery audits through a supplier management platform allows enterprises to pull data from various sources. It acts as a centralized hub that manages supplier transactions and offers increased transparency in supplier relations.
When you evaluate the financial data of both parties, recovery auditing can identify discrepancies in invoices, contract terms, payments, and fees that would otherwise go unnoticed. This ensures that all parties involved are compensated fairly and accurately while also reducing waste from over or underpayments. Recovery auditing should be carried out regularly to ensure a beneficial relationship between the organization and its supplier as it helps identify any issues early on for quick resolution.
By having an accurate picture of supplier finances, organizations can work more closely with the supplier and collaborate on areas that need improvement. Open communication between both parties will lead to a strong relationship based on mutual trust and respect. Furthermore, it will ensure that the organization receives quality goods or services in return for what they pay for, which reflects positively on the organization’s reputation. By using recovery auditing regularly, organizations can build and maintain strong relationships with their suppliers while greatly reducing waste from over or underpayments.
For enterprises seeking a supplier management platform that will ease the recovery audit process, Bedrock is a natural solution. Bedrock helps enterprises mitigate risk, improve visibility, and simplify payments for enterprises with significant supplier networks. It has advanced automation tools that help identify:
Risk mitigation and clean data go hand in hand, and with Bedrock, enterprises now have a tool that helps AP teams with clean data that can illustrate important oversights. The Bedrock Keystone Recover tools have an automated three-step process that uses 40 different algorithms to identify duplicate or erroneous invoices and payments, saving time and reducing operating costs. The Keystone Prevent features help identify these risks before they even occur, using AI technology to keep enterprises from inadvertently making financial mistakes.
Recovery audits are a pivotal part of supplier management for AP teams. It can be overwhelming to stay on top of every transaction. However, Bedrock helps to ensure no money is misplaced. With a host of tools that help enterprises regularly run recovery audits that save significant amounts of money, Bedrock lays the foundation for a more efficient and risk-free supply chain.