Tuesday 9 May 2017

Audit-proofing Trade Funding…

With the continuing development of Post-Audit-Recovery (PAR), coupled with the growth in trade funding to over 20% (!) of sales to the customer, GSCOP preventing easy fixes, and the continuing need for major UK retailers to repair greatly diminished bottom lines, it is important that suppliers anticipate the probability that every record of every promotional initiative will be subjected to analysis in terms of ‘plan vs. actual’, up to six years in arrears…

Also, given that suppliers themselves have suffered bottom line erosion via price war pressures, it is vital that companies are not hit in the current year with allowance-demands arising from previous years.

If a supplier’s system can handle such examination without cost, then perhaps no further action may be required. However, for the remaining 98% of suppliers, it may be worth examining some positive aspects of the process.

Essentially, PAR is a post-payment review to identify overpayments to suppliers (and under-collections!). It is not an audit in the traditional sense. Rather it is a control activity designed to assure the integrity of the payment/collection process, and as such, it is clearly a management function and responsibility.

For those in any doubt as to the appeal of the process to retailers, bear in mind that although the customer obviously pays for a PAR analysis, usually on a percentage of recovered funds, all monies so recovered go straight to the bottom line... In other words, PAR is here to stay, especially for increasingly narrow margin retail businesses…

It follows that in the absence of documentary records, even a relatively weak customer has to be given the benefit of any doubt arising from a PAR audit. Whilst this may represent a major threat to the unprepared supplier, it is important to view PAR as a long-overdue and positive development in helping to regulate trading arrangements between supplier and retailer and provide an effective base for ensuring compliance, especially in trade funding.

Approached positively, it can also help to build a stronger relationship with trade partners. Incidentally, it is worth bearing in mind that the same post-audit-recovery process can be applied by suppliers to manage the financial elements of their purchases of materials and services from further up the supply chain.

By taking the initiative in terms of setting and documenting common standards, attempting to clarify process and ensuring accuracy in implementation of initiatives, the supplier can ensure that the resulting system will be easier to manage and audit, apart from contributing to a better return on investment. .

It follows that the NAM/KAM, being closest to negotiated trade funding deals, is in a key  position to help define system parameters and has a direct interest in ensuring compliance at all levels in supplier and retailer organisations.

Such a system, built upon an appropriate level of transparency and trust, will help to avoid disputes in the future, and can result in a seamless integration of trading strategies and an increase in joint profit, fully defensible at any point.

In addition, for both partners, PAR can help to identify opportunities to remove inefficiencies and redundant tasks from a number of cash management processes that cover internal functions and external trading partners.

A further benefit can result from the fact that the introduction of a PAR process can lead to a merging of accounts payable and buying departments, which means that any progress in setting and maintaining PAR standards, can benefit the supplier in terms of on-time payment.

Trade funding budgets now represent too high a proportion of sales to be left exclusively in the hands of the sales department. However, audit-proofing funds expenditure to meet PAR standards can help in retaining a high degree of influence by NAMs/KAMs…

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