ADVERTORIAL
How Important is Spend Recovery in the Current Economic Climate?
By Andrew Cushion I
n such austere times and with major pressures on finances, can any business afford not to consider all avenues for income generation or savings? Finance Directors particularly have an
opportunity to bridge the gap between the ‘business’ and ‘finance’ divisions and add directly to the company’s ‘bottom-line’. Historically, there has proven to be many £millions recovered, relating to ‘hidden’ monies identified, where the Client is ‘unaware’ of monies due to them, whilst the Supplier is potentially providing against ‘future claims’ from their Clients. What no one can tell upfront is the
size of the prize. The good news is that most reviews are undertaken by third- party Spend Recovery specialists on a no-win no-fee (share of recoveries) basis so there is only an upside to undertaking such reviews.
Whilst not advertised, Spend Recovery
projects are commonplace amongst most publicly quoted companies, with some major household names even undertaking ‘second’ reviews to ensure benefits are maximised.
WHAT IS SPEND RECOVERY? Spend Recovery is the historical review of a company’s transactions with suppliers to confirm the integrity of the transactions and identify opportunities leading to financial recovery or benefit.
WHAT DOES A SPEND RECOVERY PROJECT INCLUDE? Most projects undertaken include some if not all, of the reviews (see Table 1). However, most third-party service providers are flexible in meeting the differing requirements of businesses.
WHAT IS INVOLVED?
This is dependant on the Spend Recovery services required/performed but in most cases will involve the service provider performing all stages of the review from identification to recovery. The core stages include:- • Data/information collection • Review • Validation • Recovery/Collection • Reporting/Recommendations
WHO COMMISSIONS A SPEND RECOVERY PROJECT? Traditionally such a project is commissioned and managed by either Finance or Audit Management. This provides an independent review of controls and reporting of savings/ recoveries.
WHAT IS THE COST? There are generally two potential cost elements to a review (see Table 2):
Table 1. Spend Recovery Reviews Benefits Duplicate or Overpayment Reviews Recoveries result in a direct Profit & Loss benefit and cash recovery.
In addition, recommendations should lead to process improvements and elimination of future errors.
Unclaimed VAT Supplier Statements Contract Compliance Table 2. Financial Costs
Reviews are generally based on a ‘share of savings’ with no upfront costs to your business.
Therefore, there can only be an upside from such reviews, both in terms of additional profits derived and positive Cashflow.
Internal Resource Cost
There is a perception that even though a Spend Recovery project may, in essence, be free, there is a hidden cost to a business in the form of resources required to provide data, information and management of such a project.
In reality, this is far less of an issue than anticipated. Most reviews require little resource from Clients other than initial provision of data as reviews are generally performed off- system, off-site and out of sight.
Also, fees are based on recoveries, which is generally the responsibility of the third-party to collect on behalf of the Client.
Profit & Loss benefit and cash recovery.
Results in a direct cash flow benefit to Clients, also validating the completeness and accuracy of a Client’s accounting records.
Not only results in a cash recovery but highlights issues with key contractual terms.
ULTIMATELY, WHAT DEFINES SUCCESS? The true ‘success’ of a Spend Recovery project lies within the scope of the project itself. It should not be just about the value of the recoveries themselves but the effective ‘HealthCheck’ should generate confidence in the adequacy of the procedures/processes in place. Such a project should be a ‘partnership’ so that the focus is on maximising recoveries and working towards the elimination of future errors whilst ensuring ongoing benefits.
NEXT STEPS… Review whether the business has already conducted such reviews and particularly if the reviews were internal (oſten with internal resource limitations) or external. Consider whether a subsequent unbudgeted windfall would be welcome…
CONTACT INFORMATION Andrew Cushion, Managing Director of Twice2much
dofonline.co.uk
DIRECTOR OF FINANCE
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