Resources | Finance and Lending | April 11, 2023

Post Audits: A Powerful Way for Procurement to Boost the Bottom Line

Reviewing past purchases with post audits could help enterprises recover millions and thrive during a potential recession.

As fears of a global recession increase, more enterprises have started to ask how their procurement team can help the organization prepare for a potential downturn. And that makes sense: Procurement can dramatically affect a company’s financial results by consistently delivering the right products, services and inventory at the right price. It can also protect the organization from shortfalls and delays by building more resilient supply chains.

But there’s another, often overlooked way that procurement grows the bottom line: by conducting post audits of past orders.

Because of miscommunication, misunderstandings and other human errors, companies may be overpaying on procurement orders or failing to recoup discounts that were already negotiated. Discover Dollar, a C2FO partner and post audit expert, estimates that, for every $1 billion in revenue, the typical enterprise loses $3 million through this leakage.

A post audit — also known as a post-payment audit or recovery audit — can uncover those lapses and essentially turn the procurement team into a profit center. It can also build up the cash reserves that allow a company to survive and even thrive during a recession — similar to how C2FO’s Early Payment helps suppliers boost their cash flow

How does a post audit work? 

A team of experts — sometimes internal, but often contracted from an outside firm — will undertake a comprehensive review of purchase orders, invoices and other communications to ensure that delivery was made at the agreed-upon price under the terms that were negotiated.

As part of that review, the auditors will look for:

  • Pricing errors

  • Unclaimed markdowns

  • Unaccounted discounts and credits

  • Miscalculated rebates and incentives

  • Duplicate and erroneous payments

  • Missed deal opportunities

  • Contract compliance

If any errors are identified, the enterprise can ask its business partners to rectify the situation, as defined in existing supplier agreements. 

For most enterprises, post audits can deliver sizable returns. Unfortunately, because of the manual nature of these reviews, post audits are usually conducted anywhere from 12 to 18 months after the fact. 

This can be a massive frustration for both the enterprises and their vendors. After all, in most cases, the mistakes are many, many months old — often in a different budget year — and the vendor may have already reallocated those funds to some other purpose.  

Best practices for a better post audit

Fortunately, there are several ways that procurement teams can streamline and optimize their approach to post-audit recovery. 

Use technology to speed up the pace of post audits

Though recovery audits have typically been manual, new platforms are automating much of that process, allowing reviews to be conducted much more frequently. 

Discover Dollar, for example, can produce post-audit recovery on a quarterly basis because of its solution powered by artificial intelligence. This is a huge advantage because enterprises can fix recurring issues sooner, preventing them from bleeding into another fiscal year while helping the enterprises improve their cash flow, margins and profitability. 

The “make good” process is less burdensome for vendors because, in most cases, they won’t have reallocated those funds yet. And, of course, the enterprise can receive the found money and put it to work faster. 

Using an AI-based partner like Discover Dollar can also be useful for procurement teams that are understaffed.

Consider auditing the auditors

Everyone makes mistakes, including the people who are paid to find mistakes in your payments. Some of the largest companies will hire secondary recovery teams to check the work of their primary team — that’s how much value can be found in overpayments.

Again, this is another area where technology can and should be used to provide review at a cost-effective price point. Discover Dollar, for example, often serves as a “second set of eyes” for post-audit recovery projects. 

Because Discover Dollar’s process is AI-powered and less reliant on fielding a large team, it’s able to conduct these reviews cost-effectively and avoid cutting deeply into a client’s profits — an important concern for enterprises operating in retail or other industries with narrow margins. 

Fix recurring problems to prevent future leakage

Post audits are good at uncovering one-off mistakes — like the “fat thumb” typo that turns a $1,000 invoice into a $2,000 one — but they can also show where payment leakages tend to happen over and over. The smartest enterprises use those insights to refine their processes and prevent errors from happening in the future. 

There will always be mistakes, but a proactive approach can avoid many of them and free up procurement bandwidth for other important tasks.

Why post audits are worth a closer look

Millions of dollars in cost savings could be hiding inside your organization’s old invoices, just waiting to be uncovered through a post audit overseen by your procurement team. While these audits have traditionally been time-consuming and manually intensive, there are ways to accelerate the process and magnify their impact. 

Doing so could generate significant returns, and that’s important during a period of financial uncertainty. If or when a recession occurs, having cash on hand could give your organization the funds it needs to invest in mergers and acquisitions, increased marketing or other growth strategies. 

Discover Dollar has also found that gaining greater visibility into supply chain operations can lead procurement teams to redirect resources and orders to their most effective, most reliable partners — an important method for boosting resilience during challenging times. 

And you can supercharge your results from post audits by pairing it with C2FO’s on-demand working capital platform. You can use the money recovered by your audits to make early payments to your vendors, in exchange for a discount, further improving your margins.

Start boosting your bottom line today with the power of C2FO and Discover Dollar. Contact our team to learn more.

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