PRG: HIGH TECH CASH SALVAGE
Byline: Tom Ryan
NEW YORK — Retailers are losing millions of dollars due to unclaimed allowances, cash discounts, pricing errors, overpayments of freight and duplicate payments.
But through cutting-edge technology, The Profit Recovery Group International Inc. has built a $35 million-a-year business helping retailers recoup.
In 1994, PRG experienced a 40 percent increase in revenues, which are based on a percentage of the recoveries. Cash discounts represent the largest form of recovery among department stores, averaging about 34.9 percent of overall recovery. Freight accounts for 26.4 percent; duplicate payments, 20.1 percent; missed allowances, 15.1 percent, and statement errors, 3.1 percent.
Among discounters, missed allowances make up 39.6 percent of recoveries; freight, 19.2 percent; cash discounts, 12.8 percent; pricing errors, 9.4 percent; duplicate payments, 7.7 percent, and statement errors, 7.2 percent.
Typically, PRG, based in Atlanta, will identify where the money has been overpaid and the clients deduct that amount from the next payment to the vendor.
Some retailers choose to inform the vendors and give them a chance to respond. Paul J. Dinkins, PRG’s executive vice president, attributed most of the company’s recent growth to spending $5 million on upgrading technology.
“We looked at the industry five years ago and said that in order to do what we do for a living we have to become technology-driven in a very few years,” Dinkins said. PRG then conducted a “massive reinvestment in our business,” which included developing an IBM ES/9000 mainframe data center along with proprietary software products.
Moreover, the emergence of electronic data interchange (EDI) accelerated the need for added technology.
“The more routine type of errors tend to be corrected in EDI, but with other types of errors the order of magnitude tends to get larger,” Dinkins said.
As for “seemingly insignificant, small errors” that in the past wouldn’t be worth the time to identify manually, now “we’re able to do these things electronically,” he added.
With its acquisition in mid-January of Fial & Associates Inc., PRG now has an audit base of over $380 billion, with about 400 auditors on its staff. Fial had revenues of about $7 million in 1994. About 70 percent of the firm’s clients have sales over $500 million annually. It works on a contingency basis, being paid only on recoveries.
Dinkins says PRG’s charges vary with the size of the retailer.
Ironically, better-managed companies tend to get larger recoveries. “If you were to look at some of the best-run retailers in America, the recovery is significant,” Dinkins said. “Where we are not successful, it’s because the information that we need is not available.”
PRG looks at accounts on an annual basis, typically auditing three to six months after the end of the fiscal year, and tries to complete all audits within two years. Dinkins explained, “The more time that goes by, the higher percentage that there are some vendors that they’ll no longer do business with.” Besides looking into accounts payable, PRG also looks at real estate, noting that in many cases landlords significantly overcharge tenants. The company also looks at international and domestic freight delivery, and telephone and utility expense.
For department store clients, the company may look at “demonstrator wages” to ensure that payroll expenses for workers behind cosmetic counters are being partly reimbursed by cosmetic firms. — Fairchild News Service