Don’t Let Your Credits Disappear: The Importance of a Recovery Audit in Today’s Landscape

Companies process and pay hundreds of thousands of invoices annually. The processing rate is extremely accurate (the average error rate hovers around 1/10th of a percent). However, while rare, those fractional erroneous payments can turn into significant lost profits that may never be recovered. 

With the onset of COVID and the shortage of manpower, suppliers are under increasing pressure to keep their books “clean” at year’s end. The vendors simply don’t have the time, or desire, to try to unwind the credits and debits (unrecorded balances, short pays, etc.) that are on their customers’ accounts. The solution is for the vendor to take those aged credits and debits and “net them out” with a reconciling journal entry with the difference being posted to either “Miscellaneous Income” or “Miscellaneous Expense.” Now, the vendor’s books are clean — to your company’s detriment.

Illustrating the tangible impact of this trend, consider the recent case that happened to a large healthcare organization that had engaged with Illumis for a recovery audit.

Their vendor, a large pharmaceutical company, had amassed 8 credit memos for flu vaccine returns totaling $193,000. Since these credits had aged over a year, the vendor decided to internally apply them to ”no-pay” purchase orders unbeknownst to our client. During an AP recovery audit with Illumis, these credits were identified and recovered. If we had not found the nearly $200K, it would have vanished, essentially taken as an expense reduction by the vendor.