Complex businesses leak cash to suppliers
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?