Recovery audit firms make their living finding money finance teams did not know they were missing. Duplicate payments, missed credits, contract pricing discrepancies, sales tax overpayments, and uncashed vendor refunds all surface in a typical audit.
The findings are real, the recoveries are real, and the recovery firms typically work on contingency, taking a percentage of what they find. Companies that have never run a recovery audit are almost guaranteed to have meaningful unrecovered value.
The question is not whether to recover. The question is how much to do internally versus through a specialist firm, and how to structure the work so the same gaps do not reappear next year.
What Recovery Audits Find
Recovery firms target five categories with high reliability. Knowing the categories helps determine what an internal team could plausibly recover before bringing in outside help.
Duplicate payments
Same invoice paid twice, often weeks or months apart, often because the vendor sent it through two channels or the same invoice was processed by two different AP clerks. Recovery firms use fuzzy matching algorithms across three to five years of payment history to surface these. Recovery rates range from 0.02% to 0.1% of total payments.
Missed credits
Credits issued by vendors but never applied or claimed. The accumulation comes from exactly the workflow gaps described in the earlier articles in this series. Recovery firms identify these by comparing vendor statements against ledger balances at scale.
Pricing discrepancies
Invoices paid at higher than contracted rates. The firm pulls every contract with pricing schedules and compares against actual invoice payments. The findings are highest in categories with frequent rate changes or complex pricing structures, such as logistics, professional services, and telecom.
Sales and use tax overpayments
Tax charged on transactions that should have been exempt, or tax charged at higher rates than legally required. Specialist tax recovery firms focus on this category exclusively in some cases.
Uncashed vendor refund checks and unclaimed property
Refunds issued but never received, or escheated to state unclaimed property after a holding period. Recovery firms work with state unclaimed property databases to identify these.
Internal Recovery Versus Specialist Firm
The decision framework depends on three variables: the complexity of the discovery work, the volume of data to be analyzed, and the political dynamics of the vendor relationships involved.
Internal recovery works well for
- Credits already on the books that need application or refund claims
- Specific known disputes that have unresolved credit positions
- Vendors with active relationships and clean account histories
- Recent transactions, typically within the current and prior fiscal year
Specialist firms work well for
- Multi year historical analysis going back three to seven years
- Cross system reconciliation when data is fragmented across multiple ERPs after acquisitions
- Pricing audits against complex contract structures
- Sales tax recovery, which requires specific regulatory expertise
The hybrid approach used by many finance teams: run internal recovery on current year and known credits, then engage a specialist firm for multi year historical review.
How Recovery Engagements Are Structured
Most recovery firms work on a contingency basis. They take a percentage of what they find, typically 20% to 35% depending on the category and complexity. The fee structure means the firm has no fee risk to the company, but it also means the firm is incentivized to find recoveries, not to fix the underlying processes.
A standard engagement runs four to six months and follows three phases. The first phase is data extraction, where the firm pulls payment, invoice, contract, and vendor master data from the ERP. The second phase is analysis, where the firm runs its matching algorithms and produces a findings report. The third phase is recovery, where the firm contacts vendors on behalf of the company and pursues each finding.
The recovery phase is where the company team has the most exposure. Vendors may resist findings, dispute amounts, or want to negotiate. Finance and procurement leadership need to be aligned on how aggressively to pursue recoveries against vendors with active and important commercial relationships.
What to Negotiate Before Engaging a Recovery Firm
The contingency rate is the obvious negotiation point. Less obvious but more important: define what gets included in the recovery scope and what gets excluded.
- Time period covered. The further back the firm goes, the more they find but also the more political the recoveries become.
- Vendor exclusions. Strategic suppliers may need to be excluded or handled differently to protect the commercial relationship.
- Categories in scope. Duplicate payments, missed credits, and pricing are standard. Sales tax recovery often has separate specialists and may be carved out.
- Reporting cadence. The firm should report findings regularly, not deliver a single report at the end. Early visibility lets the company influence which findings get pursued.
- Knowledge transfer. The contract should require the firm to document the patterns they found, so the company can address root causes internally.
The Follow Through That Matters
Every recovery engagement produces a finding report. Few of them produce process change. The recovery firm gets paid, the cash comes back, and 18 months later the same patterns produce the same accumulation.
The follow through that prevents this requires three steps. The findings get categorized by root cause, not just by amount. Each root cause gets a process owner and a control change. The control change gets measured for the next 12 months to verify that the pattern is not recurring.
Most finance teams skip these steps because they feel like internal work after a successful external engagement. Skipping them is the reason most companies that run recovery audits run them again three to five years later, with similar findings.
Start Here
Before deciding whether to engage a recovery firm, run a simple internal scan: pull a list of every vendor with a credit balance over 90 days old, and a sample of vendor statements to compare against ledger balances. The output of this scan tells you whether your internal credit gap is significant enough to justify external help.
If the internal scan surfaces material balances, run the recovery internally first. If the data is fragmented across systems or covers a long historical period, that is the case for engaging a specialist firm.
