Is There Financial Leakage in Your Business?

Last time, I wrote about supplier substituting products, so that what you ordered is not what was delivered or invoiced.   

I also outlined three implications this may have for your business. 

One of them, financial leakage, is worthy of further exploration. 

What is Financial Leakage? 

If the total on a supplier invoice exceeds the value of a purchase order, it warrants investigation because it is likely that one or more items were invoiced at a higher price than specified on the purchase order. 

This is a scenario that is likely to be detected by even the most basic OCR (often called scanning) solution. 

Financial Leakage can occur when the total value of an invoice is equal to or less than the total value of a purchase order.  On the surface, this may appear to be a good thing, but it is possible that this is misleading, meaning that the financial performance of your organization could be substantially better if some costs were not hidden in plain sight. 

A simple example is where the quantity received is less than the quantity ordered, but the total value of the purchase order is the same as the total value of the invoice.  A lower quantity means that you are paying more for each item – an obvious form of financial leakage. 

Hidden Financial Leakage 

This occurs when: 

a) The quantity invoiced matches the quantity ordered and the quantity received (a 3-way match). 

b) The price on the invoice matches the price on the purchase order. 

c) The number of servings is different between the purchase order and the invoice. 

    Point c} above is how the financial leakage can be hidden. 

    For example, you may have ordered spirits in a case of 12 and a case of 12 was received and invoiced, and the price on the invoice may be the same or a little less than the price on the purchase order BUT there may only be 10 servings per bottle in the case of 12 delivered instead of 15 servings per bottle in the purchase order. 

    This is a 50% decrease in servings despite the invoiced price being the same or a little less than the purchase order. 

    How Much Could Financial Leakage be Costing Your Business? 

    The scale of the issue will depend on: 

    • Your industry. 
    • Size of your business. 
    • Whether or not 3-way matching is used. 
    • Accuracy of the information used to create purchase orders. 
    • Whether supplier invoices are processed manually or not. 

    The OnePosting Supplier Invoice Automation software can help identify suspect invoices to enable you to drive financial leakage out of your business. 

    For small to medium businesses, this can deliver thousands of dollars in financial benefit while for larger businesses, the financial benefits can run to hundreds of thousands of dollars. 

    Is there Financial Leakage in Your Business? 

    If you receive more than 500 invoices per month and operate 5 or more locations, all you need to do is to book a short 15-minute online meeting and I or one of my colleagues will lead you through the process. 

    There is no fee and no strings attached so it is completely risk free. Book an appointment today.

    Finbarr McCarthy