Most businesses routinely audit their accounts payable to find errors and recover overpayments, but the best ones go a step further. They also audit their suppliers’ statements to find credits they are owed that have never been applied.

Common missed credits include merchandise returns or mark-downs, cancelled orders, rebates, unapplied cash discounts, freight allowances, forgotten deposits and credit memos mistakenly paid as invoices. Think about the number of vendors your company buys from each year and you’ll have a feel for the potential scale of the problem – and the value that auditing its supplier statements could deliver.

Conducting an effective supplier statement audit is both an art and a science. The science entails using the right technology, processes and analytics. The art involves communicating effectively to preserve valuable relationships with suppliers. Here are a few tips that can help you blend both aspects for the maximum return. 

1 Look at your own books first

Review your internal records to determine whether the company is carrying missed credits somewhere on its books. Explore both your invoice files and payment files, validating any information you uncover. Remember to check with other departments and other work locations for unrecorded credits that are being “held” for future purchases.

2 Update your supplier files

To research and recover credits you may be owed, it’s crucial that you reach the right people at the supplier’s end. Start by scrubbing your supplier master file and researching any missing names, titles, addresses, email addresses, phone numbers and fax numbers. Potential information resources include your customer service and purchasing databases, electronic remittance files (for email addresses) and your vendor maintenance portal. You’ll also want to weed out duplicates. Group all variations of each supplier’s name so that you have a consolidated view of your activity with them.

3 Make communications count

Craft a clear and concise message that’s easy for your supplier to grasp. Everyone has their own communication preferences and you want to ensure that your message gets to the appropriate person in a format that they’re most likely to heed. Find the right contact and use a combination of mail, email, fax and phone calls. If you rely on one method, you probably won’t get the results you want.

4 Review responses carefully

Track vendors’ replies, especially those of the biggest suppliers in terms of your expenditure with them. If a supplier indicates that there are no outstanding credits, analyse the supporting statements carefully to ensure these match the activity on your books. Don’t hesitate to follow this up and ask questions.

5 Protect relationships

Keep your correspondence professional and businesslike, maintaining a positive tone throughout the process to ensure that you preserve valuable links with vendors. Pay special attention to suppliers that are also customers. You may even want to single these out for special treatment. State that your goal is to ensure a clear account – and act accordingly. Taking only outstanding credits while ignoring open, aged invoices will make for a dissatisfied customer who is less willing to work with you in the future.

6 Record your progress

Document the value you’re delivering to the business by establishing a tracking system to show where you are in the audit process. Include who has responded and who hasn’t, the claims you’ve filed, how much you’ve recovered and how much is still pending.

7 Produce airtight, no-fuss claims

When you file a claim with a supplier to collect the credits you are due, include detailed notes and supporting documents to summarise how the claim originated. Provide copies of statements highlighting open credits and any database documentation available, as well as notes from conversations with the vendor about deductions or refunds never received. Check each claim carefully to ensure its accuracy. You don’t want to damage relationships with suppliers by sending them incomplete or inaccurate information.

8 Learn from what you find

Once you’ve recovered what you are owed, work out why the credits were missed in the first place. Shore up your internal controls and work with “repeat offender” suppliers to take corrective action. You may even find that your statement review has uncovered a mine of extra information that can improve your business’s profitability, especially when it comes to pricing issues.

Sarah Stevens (sstevens@apexanalytix.com) is vice-president of centralised audit services for APEX Analytix, overseeing recovery, statements, claims resolution, central audit, sourcing, project management and quality assurance.