The Five Most Common Causes of Lost Profits | Alan Srader
If there are two words businesses don’t want to hear following one another from the Accounts Payable department on a regular basis, they are “lost profits.” Frankly, the only time I like to hear the words is when I put the words “I found some” in front of them after a recovery audit.
Unfortunately, lost profits are a fact of business. Why? Accounts Payable teams process many invoices every single day; mistakes are inevitable, and millions (and by some estimates billions) of dollars in profits get lost every day. The five most common causes of lost profits include:
- Human Error
- Computer Error
- Vendor Error
- Contract Non-Compliance
- Simple Miscommunication
One thing these different reasons have in common is they are all errors. Sure, we can call the last two “non-compliance” and “miscommunication” but those are just synonyms for error. The good news is that errors have a source and if you can locate the source, you can help stop the errors that lead to lost profits.
Now, of course, all sources of errors cannot be eliminated. Consider human error. Human error is what it is. We all make mistakes. No matter how diligent your staff is, they are bound to make a mistake once in awhile. Maybe they didn’t have good data from another department in the organization; maybe they didn’t fully understand the software they were using at the time; maybe they misread the total. There are a lot of maybes that associate with human error. The only way to eliminate human error is to eliminate humans, a drastic step we wouldn’t want to take. So that is a source we prefer to monitor rather than eradicate.
Some error sources, however, can be eliminated once identified. That’s where our auditors go to work. For example, there are times when integrating a new software system results in data losses. These data losses during integration can happen on either side of the equation here, payer or payee. When this occurs, one might see duplicate payments for invoices or pricing agreements might disappear from invoicing programming. It’s also common for problems to crop up when converting to e-commerce platforms, due to a data input errors or a loss of paper trail at the time of conversion. These types of cues trigger alerts for the audit and help us identify where lost profits are getting lost.
Our auditors sniff out these sources and fix the problem. Then, they recover profits lost over the previous four years. If we can limit the errors from technology, from vendors, and non-compliance with a contract, we do that. If we can change the way certain transactional communications occur that lead to lost profits, then we do that, too.
And like me, our auditors like to add, “I found some” to the words “lost profits.” So when we find an error and correct its source, we feel pretty satisfied over here, too.
Listen, earning profits is not a walk in the park for any business today. So the last thing any business wants to hear from accounts payable is that some of them “got lost!” Errors occur every day that contribute to these losses. I hate lost profits. I like found profits. Discovering the errors during a recovery audit at their source is the best way to find to turn lost profits into found profits.
If you enjoyed this post, you might be interested in the following blogs:
- What a Bulldog and an Auditor Have In Common
- What is Escheatment and Why Should You Know
- How Far Back is Too Far Back?
Alan Srader is the Director of Audit Development and Corporate Training for AP Recovery, a firm delivering straightforward audits to enhance accounts payable efficiency. With thirty years of experience in Accounts Payable, Alan knows what makes audits work — and what makes them fall apart. Alan approaches his clients with a desire to help and a passion for solving the Account Payable overpayments and recovery of assets puzzle.
More articles by Alan.
Originally published at www.aprecovery.com on September 23, 2015.