Daily Archives: April 2, 2013

Why You Need SIM-Powered Recovery

Two weeks ago, we explained how SIM Powered Recovery Will Take You to the Next Level by noting that it can improve your recovery results by a factor of 3, 5, or even 9 over time and asked you to download the latest Sourcing Innovation Illumination, sponsored by Lavante, on Taking Capital Recovery to the Next Level.

Today, we’re going to make it clear how that will happen. Traditionally, a recovery audit will be done by a recovery audit firm that will send in a team that will spend weeks manually reviewing invoices, payments, and transactions looking for discrepancies and revenue recovery opportunities. Depending on the deal you strike, this will cost you manpower plus a not-so-small percentage of the recovery above the manpower cost (that will be in the 10% to 20% range, we’ll assume 15%) in a time plus results deal, or a large percentage of the total recovery, typically 30% to 35% (and we’ll assume 30% after strong negotiations), in a results-only deal.

In addition, it will typically be three (3) to six (6) months before the recovery firm even attempts to recover the first dollar because it will take them that long to get through enough paperwork to find enough opportunities to make a recovery effort worthwhile. During this time, up to 20% of potential credits will disappear permanently as dispute timeframes and contracts will expire.

In comparison, it’s likely the case that you can acquire a perpetual license to a good SIM-based recovery platform for approximately 100K with 20% (or 20K) annual maintenance. And you won’t need to hire any extra manpower as all you’ll need to do is feed it your sourcing, procurement, and accounts payable data, set up some matching rules, and the platform will automatically identify duplicate, non-compliant, or suspicious payments. We’ll assume it costs 25K to integrate the data feeds and work with the provider to set up the initial rules set, and 5K to maintain the feeds on an annual basis. In addition, we’ll assume a firm that does a time plus recovery deal will bill you 150K in manpower. Given these costs, we can now compare manual-vs-SIM-based recovery efforts noting that an average company, due to cost, will only undertake a recovery effort every 2 years. (Mainly because a recovery audit firm will only want to do an audit every two years because it typically takes 18-24 months after a recovery effort before a company has the same recovery effort.)

After a recovery effort, a company will temporarily scrutinize invoices and payments more closely. During this time, the vendors will also be careful not to over-bill or duplicate bill until the buyers have stopped watching so closely and have gained confidence that the over-billings have stopped. As a result, available recovery will be less the following year. However, as the buyer gains confidence that overspending is under control, the buyer will stop watching as diligently and the vendor, if it has a history of over-billing or duplicate billing, will revert to its former ways and the overspending and recovery opportunity will creep back up to where it was.

Noting that you can expect to identify 90%+ of recovery opportunities with a SIM platform, that can process all of the data you throw at it, compared to the 60% of recovery opportunities that you can expect to find with a manual effort that stops when 80% of the spend has been identified and analyzed and when almost 20% of opportunities for recovery have been lost, we get the following.

  Year 1 Year 2 Year 3 Year 4 Total
Overspend 1,000,000 500,000 1,000,000 500,000 3,000,000
  Year 1 Year 2 Year 3 Year 4 Total
SIM 900,000 450,000 900,000 450,000 2,700,000
Manual T&R 600,000 300,000 600,000 0 1,500,000
Manual R 600,000 300,000 600,000 0 1,500,000
  Year 1 Year 2 Year 3 Year 4 Total
SIM 125,000 25,000 25,000 25,000 200,000
Manual T&R 240,000 0 240,000 0 480,000
Manual R 300,000 0 300,000 0 600,000
Recovery over Cost
  Year 1 Year 2 Year 3 Year 4 Total
SIM 7.20 18.00 7.20 18.00 13.50
Manual T&R 2.50 N/A 3.75 N/A 3.13
Manual R 2.00 N/A 3.00 N/A 2.50

Which says that a SIM-effort is expected to return 4.3 times as many dollars into your organization as a manual time + results audit over four years and 5.4 times as many dollars into your organization as a manual results-only audit over four years!

You can argue the numbers a little bit each way, but it won’t affect the fact that a SIM Powered Recovery solution will deliver results that is orders of magnitude above what a manual audit will deliver. So download your copy of SIM Powered Recovery Will Take You to the Next Level today! (registration required)