Curb cash leakages by mitigating overpayment risk

Complex business processes and multiple suppliers transactions are exposing organizations to the risk of overpayments. Also, sourcing organizations are focusing on protecting their companies' margins by including dynamic commercial terms in contractual agreements. Contractual terms not considered while processing invoices are resulting in errors and overpayments. These errors are costing companies millions of dollars. According to an Institute of Finance and Management (IOFM) estimate, 0.2–2% of total payments globally are made in error. Genpact can help. Our end-to-end post-payment audit (PPA) program focuses on the identification and recovery of overpayments made in error and pinpoints control gaps in the system to prevent leakage. With greater visibility, companies can get immediate cash recovery and sustain value in the long term.

Institute of Finance and Management (IOFM) estimates that globally 0.2–2% of total payments are made in error.

A $1 billion business, for instance, is likely to have slippages in the range of 0.05–0.3% depending on the industry in which it operates, the complexity of its business processes, and the health of its procure-to-pay (P2P) controls.

Suppliers have different commercial agreements and supply-chain dynamics, including external factors impacting prices – such as underlying commodity prices that increase complexity and lead to leakage. To complicate matters further, many commercial agreements aren't captured by a structured form such as when commercial terms are agreed upon over emails.

Every industry comes with its own unique characteristics and risks. Did you know the top 10 US retailers leak upward of $1.7 billion every year in supplier payments? For retailers with a large supplier base, a dynamic pricing environment, allowances, rebates, and discounts mean that invoicing and payments need greater scrutiny. And in the automotive industry, shortages, warranties, and recalls influence pricing and invoicing, leaving the door open for discrepancies and errors. Also, from a leakage recovery perspective, high-spend areas such as freight, advertising, and telecommunications can be causes for concern. Payment leakages can vary from 2–8% spend volume, based on industry type and business complexities.

So how can companies get a handle on changing business scenarios, recover the money they've lost, and prevent the same mistakes from happening in the future?

Engaging with a PPA firm can help companies stem the flow. Genpact's PPA solution focuses on capturing discrepancies across the supply-chain process. Combining our industry and deep functional expertise with advanced digital technology and analytics capabilities, we go granular – to analyze transaction data, identify overpayments, and claw back lost dollars (figure 1).

We help customers gain insights into what's driving complexity in their procurement processes and fix the fundamental processes and control gaps. And by the third year, the leakage has decreased by 60–70%. The audit and recovery exercise is nonintrusive, which means day-to-day operations at the company can continue as normal.

Genpact assigns a dedicated project management office (PMO) staffed with subject-matter experts to work with the client's PMO team. With this knowledge-sharing relationship in place, we roll out our audit strategies to maximize recoveries. Our recovery audit scope includes:

• Duplicate audit
• Statement audit
• Contract audit
• Commodity audit
• Unstructured data audit

Genpact runs risk scenarios specific to the client's business and industry environment, uses the results to scope out areas of potential leakages, and then analyzes causal transactions, identifies exceptions, confirms leakage, and raises claims for recovery. Leakages vary from industry to industry and range from 0.05–0.25% depending on several risk parameters, such as the nature of the business, the size of the organization, and the multiplicity of ERP systems.

In addition to the recovery of leakages, we also focus on the root causes. We work on spotting other potential areas of leakages to initiate audit and recovery exercises to unlock value.

To speed things up and help keep costs low, we bring a library of more than 150 risk algorithms and audit workbooks to deploy straight out of the gate. We deploy multiple digital interventions in the recovery program to maximize recoveries, generate business insights, and enhance governance and customer experience. The program operates completely on a self-funded model and makes sure our clients get a larger share of the recovered cash.

A Fortune 100 retail company was leaking revenue to more than 20,000 suppliers. It was running a complex business with dynamic pricing, high-volume merchandise, promotional arrangements, and many contract terms agreed upon with suppliers over non-contracted arrangements.

With our PPA recovery solution, the company:

• Recovered more than $400 million of leakage from more than 20,000 suppliers over 100 different leakage scenarios pertaining to rebates, allowances, discounts, pricing, markdowns, recalls, duplicates, returns, open credits, and more
• Increased recovery by more than 11% over the previous year by identifying new avenues for analysis
• Eliminated leakages from existing sources amounting to approximately $20 million by implementing new controls in ERP system configuration and process streamlining.

Genpact has experience delivering PPA solutions at scale, recovering more than $1 billion across industries such as retail, consumer goods, life sciences, manufacturing, and services. And we do this alongside the client, enhancing governance by providing them with a cloud platform for viewing the status of findings and recoveries in real time and sharing best-in-class control practices to prevent future leakage.

Our deep functional expertise in the area of P2P, experience that comes with managing large accounts-payable practices worldwide, audit background, and intelligent use of advanced digital technologies mean that your PPA process is efficient, minimally disruptive, and tailored to your business – no matter how complex.