Ever had one of those days. Just as you finalise the sales and growth forecast, your key customer (or someone on their behalf) sends you that email….
‘Some years ago, your predecessors, predecessor agreed a promotion on the product you no-longer manufacture. We have been going through our records and found that we sold a lot, but didn’t ask you for all the funding, therefore you owe us lots of money (we haven’t added loss of interest as I think we can settle this quickly ;-). Please find attached 200 pages of documentation that substantiates what we are saying. We will knock the value off the next payment to you. I don’t anticipate this will impact the funding you are offering on future promotions. Have a nice day.’
Let me explain the chain of events that got you here;
- 3 years ago, the buying team at the customer did some analysis on what was sold during the agreed promotion, calculated what funding you owed and you paid the invoice.
- Around 6-months later, the customers internal finance team found that a whole bunch of sales hadn’t been included in the original calculation. Did a new calculation and raised another invoice – you paid that as well.
- Another 6-12 months later, an external ‘recovery-audit’ company (specialising in retail funding/promotions) trawled through the transactions and found yet more discrepancy. The customer had forgotten to include in the calculation all stock that was bought for the promotion (i.e. before the promotion actually started), not just what was sold. They sent a claim to your predecessor, he hadn’t time to review it so agreed a settlement.
- 2 years later (now), a different ‘recovery-audit’ company is doing another review. They think they have found more errors, they aren’t altogether sure, but it kind-of looks like there are some mistakes, so they have raised a series of claims with a lot of back-up documents and sent them to you for review.
And here we are, the onus on you to fix a mess from before you even joined the company. What do you do now?
My guess, is negotiate another settlement? Finance and IT haven’t the time (or inclination) to get you the data, and lets be honest you don’t have the time or inclination to analyse it – so its easier to negotiate with the customer.
And that is exactly what these audit companies want. They are remunerated by taking a share of whatever they are able to recover from you for the customer – so the more claims they raise, the more likely a negotiated settlement, the more they get paid.
Not only does this cost your business money (and cold cash at that), but it impacts on this years marketing budget, which means less promotions and reduces your chances of achieving target – lets start again on the sales plan!
OK, yes we can help you analyse and, where appropriate, rebut those claims (and that is a worthwhile exercise freeing your time and money). More importantly, how do you manage this whole promotional funding process better?
Of course, utopia is for your ERP system to connect with the various promotional, ordering and AR systems to effectively manage this – but that will cost – both in time and £’s.
Quicker and cheaper – introduce a process where the relevant data is taken from these disparate systems and centrally stored and analysed on an ongoing basis, so you know your exposure at any given time (if you like, the reverse of what the recovery-audit companies do).
As a very quick starting point, here are 4 tips you should consider implementing to reduce the promotional funding administration processes:
1. Consider inserting additional clauses into funding arrangements;
- ‘claims for funding’ must be made within 6-months of the promotion finishing
- in the event any ‘claims for funding’ submitted are found to be illegitimate, we will charge you (the customer) at a rate of £150 per hour for the time taken to investigate and reject the claim
- informing suppliers that any disclosure of ‘pricing’ or agreements to any 3rd parties will contravene the agreement or deal, this should include ‘Audit Recovery’ firms.
2. Agree that calculations and submissions made by the customer will be treated as full and final – request a declaration from the customer before settling any funding or any cessation of supply of any product or service, confirming they have received the correct payment for goods or services to date.
3. Build a centralised ‘log’ of claims received by customer and the settled value – showing a high % of ‘false’ claims makes negotiating the next one a little easier
4. Identify (internally or with the help of a 3rd party) underpayments, payments not within ‘agreed terms’ and over deductions made and submit as ‘Counter Claims’. These will at least reduce the value of any claim and may result in the customer not pursuing their claims further.