Expense Recovery / Cost Recovery / The Road to Financial Recovery

~ Saturday, April 29, 2023 Blog Post ~

[Cost Recovery / Expense Recovery / Financial Recovery Articles / The Road to Financial Recovery]

As a miser, I hate losing money and spending it on unnecessary expenses. I’m focusing on recovering all the money I expended these past few months by avoiding nonessential costs.

I had the time to reflect and identify these unimportant expenses lately. I’m glad they are not really financially damaging on my overall personal finance life, but they are merely inessential and I’m succeeding in getting rid of them.

These expenses hinder my objective of a rich and peaceful life. Hence, I really need to avoid them and not get distracted from my goals.

Freshbooks.com defined “cost recovery” as “the principle of recovering a business expenditure, and generally refers to regaining the cost of any business-related expense.”

Additionally, I found two somewhat related posts which relate to businesses though and not individuals like myself. I just like the “cost recovery” descriptions in these two articles which I can apply to my situation:

Article #1: What is cost recovery? (From GoCardless)

By GoCardless, February 2021

Every company faces expenses as part of its daily business, but making those costs back is essential to staying afloat and keeping the books in order. This is where cost recovery comes in.

Cost recovery definition

Cost recovery, or the cost recovery method, refers to the means of recouping the cost of any expense. Cost recovery recognizes that recovering costs doesn’t happen instantly, or even within the same year, and the cost recovery method makes allowances for this when it comes to balancing the books.

What is the cost recovery method?

The cost recovery method is a way to calculate your income while considering all the costs that haven’t been recovered yet. Essentially, your business’s books will not recognize a transaction or cost until it has been fully recovered. Using the cost recovery method, a business will recognize revenue and cost of sales for any given transaction but will not immediately count the profit.

When payment is received for the transaction, it will not be considered until it counts as recovery of costs of goods sold. Any remainder is then considered profit. Using this method, a cost recovery is recognized as something that can take multiple years. The cost recovery method is therefore one of the more cautious approaches when it comes to calculating profit and helps prevent over-estimations by bearing your outstanding costs in mind.

Cost recovery method examples

Imagine that Company A purchases equipment from Company B at £100,000. The cost of goods sold was £60,000. Company A chooses a payment method that lets him use recurring payments, paying £20,000 immediately, and £20,000 per annum over the next four years.

The £40,000 (price of goods less cost of goods sold) will not be considered profit for Company B in this current accounting period, or any accounting period until Company A’s pay installments have covered the cost of goods sold. By the end of year three, Company A will have paid £60,000, covering the cost of goods sold only, not creating profit. Therefore, even in this year, Company B will not record any earnings on this sale in accordance with the cost recovery method.

All following years will see Company A’s £20,000 instalments counting as above the cost of goods sold, therefore they can be considered profit in the final two years of their payment plan.

Advantages of cost recovery

One of the main advantages of cost recovery is that it makes allowances for the uncertainty of repayment as you draw up the books at the end of each year. If Company A were to miss its payment in year one, but doubled its payment in year two, neither repayment is recorded as earnings according to the cost recovery method. So, this delay does not impact the administration of accounts. Tax is also delayed until full cost is recovered of any product or services sold, which can help in situations where money is tight and savings on tax can make a big difference.

Disadvantages of the cost recovery method

The biggest disadvantage of the cost recovery method is that no matter how successful a company may be when it comes to sales within a certain period, none of them count for that period until they are all paid off. That means a company might make 12 sales in June 2021, but none of this will be reflected on the balance sheet until all these costs of goods sold are met. The precise date that this occurs for each individual sale can also vary wildly.

Article #2: Streamlining Cost Recovery for Law Firms

By Robert H. Caldwell, on Apr 6, 2016

Use print tracking and managed print services to simplify cost recovery in your law firm.

Recouping business expenditures taken on behalf of a client (whether internal or external) is necessary. Keeping track of each of those expenses for every single client can be difficult and time consuming.

It’s sort of like traveling for business. You have that thought, “I could be reimbursed for my meals and my trips to Starbucks, but do I really feel like jumping through the necessary hoops?” Sometimes your time is just worth more than the trouble of recovering a cost.

The good news? Establishing and collecting user fees in order to recover the full cost of delivering a service or project doesn’t have to be difficult or time consuming.

There are tools and strategies available so that you can properly track the resources and time used for individual clients, allowing you to appropriately charge clients for billable resources — without it sucking an excess amount of time out of your workweek. For law firms always on a deadline and pressed for time, this can be a godsend.

Streamlining Legal Cost Recovery

Depending on the type of business, the specifics of recovering costs vary. Law firms, for example, track and determine fees for the amount of photocopies, prints, scans, hours of research, travel, etc. needed for each client. A lawyer may charge a certain fee for a service or an hourly rate, but expenses to the law firm that are related directly to a client’s case are outside of that fee or rate and recovered at the close of a case.

You could investigate and implement print tracking software on your own. Or you could eliminate the hassle of doing it yourself and see if MPS (Managed Print Services) is a good fit for your law firm. Your provider (or partner, as we like to call it) will develop a customized solution to address your business’ needs, including for cost recovery.

With MPS you can:

• Track and monitor internal print costs
• Track and monitor client-specific print jobs
• Integrate bill-back data into accounting backend
• View and export billing costs

Not only will your cost recovery be more accurate and your business more profitable, but you (and the office) will be more efficient and productive.

So go ahead and mark tracking numerous hours of research records, preparing court documents, managing case information, and ensuring regulatory compliance off of the list of things you’re juggling. You’ll have more time to put much needed effort into other important items on your to-do list.

Want to learn more about MPS, click on the image below to read our free ebook! If you’d like to find out how to streamline cost recovery ASAP; let’s talk — we’d love to hear from you.

Sources:

https://www.datamaxtexas.com/blog/streamlining-cost-recovery-for-law-firms

https://gocardless.com/guides/posts/what-is-cost-recovery/

https://www.freshbooks.com/hub/accounting/cost-recovery-method