The Supply Side: Wal-Mart tweaks its post-payment audit rules

Suppliers for Wal-Mart Stores were notified Friday (June 27) that the retailer is making two major changes – including raising the automatic deduction from a supplier’s account to $100,000 – to its post-payment audit process effective July 15.

Notice came in the form an of e-mail at 4:22 p.m. Friday. The retailer said it is streamlining its post audit claims process hoping to reduce the number of claims posted and provide suppliers with a more timely resolution of outstanding payment issues directly with Wal-Mart’s own audit department.

Post-payment audit deductions can occur when the retailer discovers a pricing discrepancy on a particular item that deviates from the contract made between the buyer and supplier. Claims can also arise from shipping errors, partial orders, labeling mistakes and product substitutions.

The new protocol allows Wal-Mart to automatically deduct claims of $100,000 or less from the supplier’s account by explaining the withdrawal with supporting documentation. Previously, automatic deductions for audit claims were limited to $25,000 or less.

Randy Hargrove, corporate spokesman for Wal-Mart, said the reason for raising the deduction threshold is an effort to reduce the number of claims and streamline the process. He adds that the $100,000 threshold is more inline with growth in sales Wal-Mart has achieved in recent years.

The other major change is that buyers (a Wal-Mart employee) will have less involvement in the resolution of working claims under $100,000. This move, according to Wal-Mart, gives buyers more time to devote to their core responsibilities. Hargrove said buyers will still be involved if the claim is greater than $100,000 and initially denied by a vendor or an auto deducted claim is disputed and the buyer’s assistance is needed to validate any additional details provided by the supplier.

"We’ll still be allowing our buyers to maintain their focus on their business unit, and we believe this will result in a more timely resolution," Hargrove said. “We are providing suppliers with a key contact name and phone number to one of Wal-Mart’s own auditors who will work with the suppliers toward a resolution. If a deduction is made and a question is raised, Walmart’s auditor will work through the dispute with the supplier and refund the deduction if warranted.” 

He once Wal-Mart validates and finds there has been a deduction error, payback is no less than 24 hours. Insiders estimate the timeframe to resolve an issue can range between six and nine months following the deduction.

Hargrove said the July 15 effective date on higher automatic deductions applies to new claims and does not include claims already pending.

Analysts and auditors who work with suppliers to defend retailer claims said the change could be burdensome for smaller to medium size suppliers who might not have the cash flow to sustain $100,000 hits to their budget.

“This new policy highlights the need for suppliers to ensure all proposals and agreements are clearly worded. We recommend that suppliers conduct their own internal audit to review their agreements for accuracy, clarity and proper execution. Rejected offers, including coops, should also be reviewed and documented to reduce audit exposure. Since the buyer will have no discernable role in claims $100k and under, suppliers will need to be proactive in order to prevent invalid claims from being deducted,” said Peter Smith, spokesman for Harvest Revenue, a Bentonville-based company that represents suppliers in the post-audit process.

Smaller suppliers, some 2-and 3-person shops could have the most to lose with this new larger deduction policy, but Hargrove said at anytime a supplier can declare a hardship case and receive special consideration. He said the retailer aims to fully research the discrepancy before any action is taken. 

“Last year the number of claims and their dollar values were reduced,” Hargrove said. “We work with all of our merchants and suppliers to ensure that our billing is correct.”

There are billions at stake in the post-payment audit business with some estimates of 0.1% leakage – disputed payment, reimbursements, etc. – for every $1 billion in transactions between a retailer and its supplier community. Just for Wal-Mart alone the leakage could total as much as $500 million in claims.