The financial health of your business is critical for long-term success. Too often, however, small organizational problems go unaddressed – and without the company noticing, those issues are responsible for money leaking – even hemorrhaging – out of the business.
Plugging these leaks should be a top priority for any organization, but first you have to identify them. Here are some telltale signs that your company might be leaking money because of organizational and process-related problems with supplier returns.
1. No One Is Managing Returns, but They Often Think Others Are
Supplier returns are, unfortunately, an afterthought for too many teams. One team may be focused on purchase orders, while another is focused on invoicing, etc. Buyers in Purchasing are focused on getting purchase orders out the door and supplies in the door. Payables are focused on paying invoices and managing cash flow… But is anyone actually ensuring the credits are processed or applied?
One common misunderstanding organizations have is believing that Purchasing is taking care of supplier return processing. It’s true that Purchasing is a stakeholder, but they are just one stakeholder in the full supplier return life cycle. The primary stakeholders include the Supplier, End User, Shipping Dock, Inventory/Materials Management, Payables, and Purchasing. An organization may have one of these areas involved, but success is usually only realized when a dedicated team is created with the primary mandate of processing returns through to Payables and to the correct accounting string.
Not having a dedicated and focused team, whose #1 priority is processing returns, could be causing your company to leave a ton of money on the table. Depending on the size of your business, you could have millions of dollars in unclaimed supplier credits – simply because it isn’t anyone’s specific job to keep track of them.
Organizations may also believe that Suppliers will help to make sure you receive your credit. They have good intentions, but this is not practical. Suppliers’ priorities and systems are set up to receive orders and ship product – that’s what they’re in business to do. Like most organizations, Suppliers have very similar people, process, technology, and governance issues when processing returns.
2. No Process for Supplier Returns
Even if you do have an individual or team responsible for supplier returns and credits, you need a formal process! Without a rigorous, established method for processing supplier returns and claiming credits, things can slip through the cracks! Like any other business process, clear instructions and step-by-step documentation is essential to ensure consistency.
Many organizations make the mistake of thinking the process is simple. For most organizations, this is a 15+ step process. Below is a high-level example of the steps involved in processing a supplier return.
- End-user makes a return request
- Receive requests from end-users
- Validate end user-provided information and PO
- Enter/Update returns in your ERP
- Call the Supplier to obtain approval
- Follow up with the Supplier to obtain approval and return instructions
- Update the returns with supplier-provided approval information and the return instructions
- Contact end-user and walk end-user through the return instructions
- End-user ships or stages return to be shipped
- Follow up with end-user to confirm the return was shipped and obtain the tracking number
- Update the return with shipping tracking number provided by the end-user
- If inventory items, follow up with inventory to verify suppliers were depleted
- Update the return that it’s complete and ready to interface with AP
- Confirm the return has been interfaced and taken by AP
- Meet with AP on a recurring basis
Take the time to develop a system for every step of the return process. If your team is following this system to the letter, details are far less likely to be overlooked, communication will remain consistent, and you won’t be leaking money because of unprocessed supplier credits.
3. No Visibility
This falls right in line with the other two warning signs, but has less to do with specific processes and responsibilities. The reality is that most people don’t even think about supplier returns as an important financial component of the business. To rectify this problem, the importance of supplier returns and credits needs to be emphasized from the top down.
This means making sure that company leadership, management, supervisors, staff, and everyone in between understand how essential this piece of the business is to the bottom line. Determining a responsible team (or individual) and developing a process will certainly help, but those processes and controls must be visible through the entire life cycle of the Return – and managed step by step by the team. Without this visibility, the team cannot achieve their #1 objective: make sure every credit is taken by Payables!
If you don’t have these 3 things in place, you could be leaving a massive amount of money on the table. Did you know that Belmero provides a Supplier Returns Fully Managed Service that will take care of the entire process for you? Belmero can provide the people, process, technology, and governance to successfully ensure every credit is taken by Payables!
Are you thinking about managing supplier returns internally? It’s a large undertaking! We can help set you up for success with our proven supplier returns SaaS to help prevent financial leakage! Click here for more information.
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