Beating the Bounty Hunters

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Not everyone can do this, but here's a story we just love about an innovative and aggressive approach to combat a post audit claim. This one's fun.

A while back, a credit exec we know received a notice from one of his larger customers, indicating they had conducted a "post audit" and had found some areas of concern. About a week later, they received a small package of documents along with a request for about $40,000 in credits for supposed pricing errors and other deductions owed to the customer. The post-audit claims extended back almost three years, and the letter stated that they had 21 days in which to respond. Otherwise, the $40,000 would be deducted from a payment.

For those of you who might not be familiar with post audits, they typically involve a third party that comes into a corporation and reviews its records for errors made by vendors, such as failing to issue credit memos or issuing credits for less than the amount actually owed. The post-audit firm gets a significant share (e.g., 30% or more) of any recovery.

There are two keys to the process. The post-audit team typically presents itself as "representatives" of the customer, and the customer must be prepared to deduct the amount that the post audit indicates is "owed." After gaining agreement from his manager, our credit exec friend decided to challenge the entire post-audit process. He called the customer's CFO and told him that they would need at least three months to evaluate the more than 100 items listed on the spreadsheet. The CFO told the credit exec that he would need to speak to the auditor. The auditor, in turn, denied his "request" for an extension.

And here's where our friend stepped up the pressure and went on the offensive.

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With his manager's approval, he called the CFO again and explained that he was not "requesting" an extension, he was informing them that he would need at least three months to investigate the claims and that a deduction made prior to that would result in the account being placed on hold. He also told the CFO that he would need copies of all the relevant documents, including copies of their invoices and credits, as well as the customer's checks and remittance advice for every payment made in the last three years. As you can imagine, this resulted in a great deal of controversy.

After six months of work, they finally settled this post-audit claim with a payment of less than 10% of the original $40,000. The outcome would have been far different if . . .

He did not have the support of his manager.
His company had been unwilling to change the rules the auditor was trying to impose.
They had not gone "outside of the box" and contacted the customer's CFO directly.

The lesson he learned was that if you want to beat the bounty hunters, you have to change the rules they use when they are hunting for your money