How Electrical Manufacturer Transformed Their P2P Process and Recovered $6.4M

With great volume comes great complexity. A leading manufacturer of electrical and electronic products sought more clarity and control over its purchase-to-pay (P2P) processes. Handling millions of invoices from 16,000 suppliers in different formats and languages requires extensive cooperation and synergy among people and systems. The company aimed to eliminate inefficiencies that were impacting financial performance and supplier relationships.

This case study reveals how Transparent uncovered payment discrepancies, recovered $6.4 million for the company, and made strategic recommendations to increase operational efficiency, reduce costs and strengthen supplier relationships. All of this was uncovered through our Accounts Payable Recovery Audit process. 

Managing financial operations on a global scale comes with a fair share of challenges that often land on the desks of shared service centers (SSCs). Over the years, we have found that these hurdles are quite similar across industries and regions:

• System Integration and Data Consistency: Combining various ERP systems like SAP, JDE, or Oracle can be tricky, often leading to data mismatches, especially when merging information from various units.

• Automation Gaps: Even with sophisticated ERP systems, many service centers still manage data entry and approvals manually, which is slow and error-prone. The idea of fully automated invoicing is still a distant dream for many companies.
• Limited Real-Time Visibility: Access to technology doesn’t guarantee real-time insight into invoice and payment statuses, complicating timely supplier payments.
• Exception Handling: While most invoices are automated, the remaining exceptions consume substantial time. Manual resolution of these issues overburdens teams.
• Communication and System Gaps: Keeping track of interactions with thousands of suppliers is challenging. Miscommunications can cause overpayments and unclaimed credits, complicating the reconciliation process and straining relationships.

Everyone wants to work faster, cheaper, smarter. It’s no surprise that many companies look to technology for answers. But even the best controls – automated workflows, three-way matching, no-PO-no-pay systems, duplicate payment checks, and role-based access – aren’t foolproof. 

We see it time after time: controls can be circumvented, systems can fail, and processes are not always followed. As much as it hurts to admit, mistakes are inevitable.

This particular client had several measures in place for managing returned goods.

“During our audit, we found that many credit notes for returned goods were being missed. The client had to rethink their processes and are now developing new methods to handle returns more effectively and ensure that credit notes are not overlooked.” 

– Jason Najera, Financial Auditor at Transparent

It all starts with data, as we like to say. We did an Accounts Payable Recovery Audit, using two methods to capture payment discrepancies: data analysis and vendor reconciliation. Our team invested hundreds of hours, connecting with vendors in their own languages to ensure nothing was missed. This deep dive into data allowed us to spot the root causes behind overpayments and bottlenecks. Now, we’re on the path to help our client create smoother, smarter operations.

We successfully reclaimed $6.4 million in credits and overpayments for our client. This included addressing returned goods, duplicate payments, unallocated payments, and more—with returned goods making up over half of the recovery. These findings underscored major inefficiencies and guided substantial financial improvements.

Recovery is just one part of the value we deliver. We always go a step further, helping our clients continuously improve. By delving into the root causes of overpayments, we have pinpointed crucial areas that required revision and additional controls.

#1: A better system for addressing returned goods

What we observed: Over half of recoveries were linked to returned goods. 

The Issue: Many returns weren’t recorded in the client’s ERP systems, hindered by different processes and gaps in communication between departments.

Our solution: We recommend using advanced systems that automatically track and log returns. Standardizing returns processes and improving training in purchasing, accounts payable and inventory management provides a comprehensive oversight and streamlined operations.

#2 Capturing duplicate payments that slip through

What we have observed: Despite the strictest controls of internal and external software, we detected 133 duplicate payments, which corresponds to 10.14% of all recoveries.

The Issue: Duplicate payments occurred when copies of invoices or payment reminders were processed in addition to the original invoice. The reasons for this ranged from insufficient controls to communication problems. In some cases, SAP controls were circumvented by changing the invoice references or using different notations.

Our solution: We advised enabling SAP alerts to detect potential duplicates and tightening protocols to prevent the alerts from being rejected. It is important that each invoice copy matches the original previously posted and that the invoice details are correct. If invoices are unclear, client’s staff should to obtain a legible version before processing to avoid errors.

#3 Overpayments that could be avoided

What we observed: The client overspent on supplier invoices 84 times, contributing to 5.63% of our total recoveries.

The Issue: Overpayments occurred mainly due to errors in keying in amounts and the presence of multiple balances on invoices, which confused processors about the correct amount to pay.

Our Recommendations: We advised the client to implement OCR technology to automatically scan and input critical invoice details into their ERP system; establish a review process for invoices exceeding certain thresholds to confirm the keyed amounts match the documented amounts; communicate price changes effectively to ensure alignment between invoiced amounts by vendors and payments made by the entity.

#4 More insight into unposted credits

What we have observed: Some credits go unnoticed. We found 59 cases where credits were not posted in the client’s ERP system, accounting for 2.84% of all recoveries.

The Issue: The reasons for unposted credits were manifold: suppliers not informing them about credits, incorrect contact details within the company, mismatched invoice requirements, data entry errors and suppliers applying payments to the oldest invoices by default.

Our solution: We recommended setting up clear communication channels and updating contact details to ensure correct delivery of credit notes. We also advised optimizing the supplier invoice management system to better reconcile invoices and credit notes. In our experience, it is difficult to completely prevent this type of claim. Therefore, it is important to regularly reconcile supplier accounts to identify and correct unapplied or overlooked credit notes.

#5 Getting more clarity on unapplied payments

What we observed: We identified 44 cases of unapplied cash, representing 4.27% of our total recoveries.

The Issue: There were multiple reasons for unapplied cash: payments sent for cancelled invoices, vendors applying old credit memos without notifying the client, and improperly formatted remittances.

Our Recommendations: We advised setting clear guidelines for vendors: only apply payments as specified, and seek clarification for any discrepancies or unclear details. Additionally, vendors must obtain the client’s consent before applying aged credits to invoices, ensuring both parties maintain accurate records. Accurate entry of invoice details is essential to prevent misapplications and ensure payments are applied correctly.

Every company has to deal with payment problems, regardless of the sector. Vitas Jalinskas, who has over 30 years of experience in the P2P sector, outlines basic steps that can prevent the majority of payment errors:

• #1 Gain process visibility: Clear process ownership is crucial. Without a central point connecting all departments, valuable insights are lost. Broad oversight of the entire procure-to-pay cycle helps detect and resolve issues early.
• #2 Talk the talk: Most issues can be avoided with better communication between departments. Implement systems that support seamless knowledge sharing.
• #3 Clean your vendor data, regularly: On average, 52% of vendor data is outdated or inaccurate, causing delayed payments, high management costs, inefficient automation, and increased fraud risk. Regularly updating vendor data is essential to make sure your automation runs smoothly.
• #4 Audit your processes: Regular audits are one of the most effective ways to check whether your automation and staff are working as intended. Compare your records with vendors, identify discrepancies, and test your systems. Use these findings as opportunities for improvement.

Simple doesn’t mean easy. We are here to support you every step of the way. Let’s discuss how we can help improve your P2P process.