How inflation is hitting retailers

Recent studies have shown that retail spending appears to be improving - but the key word here is “appears”. Once inflation is taken into account, consumer spending habits are actually falling across the country. In 2022, 52% of consumers claimed that rising costs impacted their ability to make purchases.

With annual inflation above 9%, the pressure is on for companies to find solutions to shrinking revenue and overcome challenges such as…

• Eroding purchasing power + diminishing cash flow

• Declining margins

• Greater supply chain costs + disruption

• Excess inventory

• Growing interest rates

And as budgets continue to dwindle, businesses have to get creative to do more with less.

Of 79 major retailers surveyed in May 2022:

• 59% of retailers predicted a decline in revenue in 2023

• 71% of retailers predicted a decrease in EBITDA in 2023

• 2/3 saw a decline in share prices

Source: McKinsey

That’s where accelerated recovery comes in

Year after year, retailers tend to stick with the same primary and secondary recovery audit firms - and while they might bring in consistent value with each recovery cycle, their time is more valuable than they think. 

Most primary recovery audit firms don’t even start to review transactions until a minimum of 180 days after they occur. But oftentimes, they wait until an entire year has passed. Consider how rapidly economic factors such as inflation can change - these external variables affect retailers’ ability to manage and recover older financial leakage.

The longer retailers wait to review those transactions, the longer their money is sitting (losing value) AND the higher chances are that they damage vendor relationships. In the worst cases, those vendor relationships end before the recovery is made - and retailers never see that money again.

In times of economic strain, many companies look to external factors they can change. But studies show that examining internal processes can uncover operational challenges over which retailers have significantly more control.

And the quicker those are reviewed, the quicker retailers  see where their money’s going, allowing them to get a head start on recovering unclaimed money when they need it most: right now.

There’s absolutely no reason to drop current primary and secondary partners, especially if they’re bringing in consistent value…but it’s definitely worthwhile to think about how retailers can improve their processes, strengthen vendor relationships, and accelerate recoveries with an in-year audit program. 

Want to learn more about accelerated recovery? Check out The Power of Acceleration and Prevention in the Recovery Audit Process

If in-year work is so great, why aren’t more retailers doing it?

Reason #1: They lack internal structures.

Adopting new technology and partnerships requires infrastructure that many companies just don’t have. 

But what they don’t know is that waiting to modernize tech and update processes is only prolonging an inevitable shift - and what they would save in the long run far outweighs any initial costs or effort.

Check the health of your AP process and see the steps you can take today to get proactive with our Ultimate AP Assurance Checklist

Reason #2: They think their incumbents will eventually get to it.

As long as retailers have a claim open, their primary audit partner is making money, year after year; if they profit from retailers’ persisting problems, why would they resolve those claims?

It’s cheaper and easier for firms to do a bulk review of transactions 1-2 years later vs. reviewing them each month (within 30 days of each transaction). This means lost funds and vendor strain for the retailer.

Reason #3: They’re uncomfortable with change.

Finance professionals already have so much to manage and oversee in their day-to-day, and they might think that they’ve already solved the problem to the best of their ability - if they’ve already got a primary and secondary recovery audit partner, that’s one more box they can check on their long to-do list.

However, adding an in-year partner will actually save them so much more in the long run when they’re tracking down fewer vendors, missing fewer dollars, and dealing with fewer transactions over time - cutting their to-do list down significantly rather than checking off one sole box.

Discover how error prevention can boost your profit margins, optimize cash flow, and strengthen vendor relationships in the retail sector in our blog, “Error Prevention: Why Recovery Audit Isn’t Enough in the Retail Industry” +

Benefits of accelerated recovery audit work

In-year or accelerated recovery work doesn’t just recover money faster. The benefits range from finances, to vendor relationships, to the flow of each process within an organization. 

In this case, time really is money.

The longer retailers wait to review transactions, the less their money is worth, the less likely they are to actually ever see it again, and the more likely they’ll strain relationships with vendors.

Pursuing recoveries in-year (within 30 days of a transaction) frees up time and resources to invest in where a company is going rather than getting stuck where it’s been. Plus, retailers will see a reduction in friction within their internal processes as well as with their vendors.

Benefit #1: Refine, standardize, and improve internal processes

Getting into the habit of reviewing recoveries earlier can save retailers from headaches in the future.

A continued perk of regular recovery audits is that they uncover flaws and gaps in internal processes, such as payment errors, contractual mistakes, or friction in operations that are slowing retailers down or holding them back.

The sooner retailers recognize these gaps, the sooner they can resolve them to elevate their organization as a whole.

Benefit #2: Save time, increase efficiency

A common misconception about allowing an outside partner to accelerate the transaction review schedule to in-year is that it creates more work for the in-house team.

But really, in-year teams with accelerated capabilities actually help free up time so companies can get back to improving margins elsewhere.

Think about how much time is spent on the back-and-forth communication between internal teams and vendors attempting to resolve a transaction that happened a year or more in the past.

What are the odds that both parties who negotiated the terms in the first place are still there? Most likely, they’re not - leaving new, unfamiliar parties to dig back through old communications to try and make some sense of the transactions.

Learn how to avoid wasted time and improve your contract negotiation in our blog, "5 Tips for Better Contracts: How to Improve Contract Negotiation in the Procurement Process" +

Benefit #3: Increase claim conversion rates

Pursuing an accelerated recovery schedule might seem like something that can take the back burner, but the longer retailers wait, the less likely they are to ever see that money again.

As time goes on, people get busy with other things, move on, and sometimes even forget about the transaction altogether. And taking the time value of money into consideration, that money loses value with every day that goes by.

Recovering over a year later might diminish the amount retailers are able to retrieve, especially if they work with vendors who operate with time restrictions.

Benefit #4: Better supplier relationship management now leads to better contract terms later

It can be stressful to review one’s own transactions and reach out to suppliers when several months have passed. But imagine the strain that it puts on the suppliers themselves.

When a vendor has to dig back through records, communicate back and forth, and generally put a halt to their week or even month to review transactions, it’s time-consuming and frustrating.

Accelerated recoveries help soften the blow to both parties due to its much more recent timeline and familiarity to each individual involved. And by making suppliers’ lives easier, retailers ultimately make their own lives easier as well.

For more on vendor relationship management: What You Need for an Effective Recovery Audit RFP

Benefit #5: Find something for the board to celebrate

Stakeholders and CFOs are always looking for action behind the numbers. By accelerating the review closer to the transaction, it’s easier to see all root causes of what’s causing those errors in the first place.

With that insight, retailers are equipped to stop errors either right away or even before they occur at all - and they can keep their board up to date with consistent reporting that doesn’t leave anyone scrambling for answers.

Not only that, but money now is worth more than money later - especially when inflation is at play. Reviewing transactions sooner ensures that money is worth the same amount as it was when the payment error occurred.

Benefit #6: Spend less on recovery audits

Typically firms do a bulk review of transactions 1-2 years later vs. reviewing them each month (within 30 days of each transaction).

This costs more because companies end up paying larger fees to those firms instead of catching and correcting revenue leakage immediately, preventing those leakages from ever happening again.

Related reading: What is an Accounts Payable (AP) Audit and How to Prevent Payment Errors

Benefit #7: Lastly, it’s 100% risk-free

Think of accelerated recoveries as a booster to the existing recovery audit function.

Working with an outside recovery firm to catch transactions in-year means they’re finding erroneous payments and recovering lost funds as soon as 30 days after the transaction occurs. They’re recovering funds that otherwise would have been left stagnant for months, and more likely years - and they’re finding significantly more than retailers are typically used to.

So when external primary and secondary recovery partners come in, there’s much, MUCH less for them to catch because it’s already made its way back to the retailer’s pocket.

There is absolutely nothing to lose by adding an in-year audit partner - only room for growth. Even if anything slips through the cracks, the incumbents are still in place to catch anything that is missed in-year (it will just be significantly less).

How to take action

There’s no need to fully change providers or take on any added risk with an accelerated recovery. By allowing a third entrant to bid on accelerating a portion of the audit scope, you bring in the potential to recover more, faster, without damaging relationships or recoveries that come from other vendors.

Stay ahead with accelerated recovery

With the COVID-19 pandemic, retailers saw a surge in demand from consumers - retail sales grew by 7% in 2020, and then doubled to over 14% in 2021.

But that’s about to change. With rising inflation and MANY indicators of distress permeating throughout the global economy, it’s clear that retailers will need a solution to keep their heads above water. 

• US inflation is up 8.5%  this year.

• UK Inflation is up 8.2% this year.

• Global inflation is up 8.6% this year.

• Consumers plan to cut grocery spending, travel, and other nonessential expenses throughout the end of 2022.

CFOs have major challenges ahead of them - resources will be constricted, which means fewer headcount, smaller budgets, and more pressure than ever to mitigate the risk of revenue leakage and free up as much cash flow as possible. 

By accelerating the review schedule to in-year, retailers don’t just get ahead of inflation - they manage supplier relationships, address operational challenges, increase the bandwidth of their in-house team, and that’s all without mentioning the immense long-term financial benefits.

Within this shift, there will be winners and losers. Those who take proactive action today will put themselves in a much better position tomorrow…and no one who makes more money today ever regrets it tomorrow.