High-Volume Low-Value: No Receipt will be Left Behind
When it comes to receipt analysis at big scale, it’s playing a numbers game. There is a cost of analysis for each receipt and invoice, and there is a gain to be made. In VAT reclaim, we all work together – consumers, employers, analysts, and businesses – to make a gain from undue taxes that were collected. Every stakeholder takes a cut of the gains pie. But, with a very small pie, the cost of cutting it overwhelms the potential gain. We at Way2VAT work to make the pie bigger and bring new money to the table.
A simple warm-up math exercise: We have a receipt for €20. The VAT due on the transaction is 6%, so €1.13 was paid in VAT (a €18.87 expense before tax). Let’s assume the cost of a single receipt analysis to extract information is fixed at €0.70 (this is not a realistic estimate). The VAT reclaim service may charge up to 30% (again not a realistic example) of the reclaimed VAT overall, meaning €0.67. Taking more than 30% will put the whole transaction at risk. Since the cost €0.70 is bigger than the potential gain of €0.67, this receipt will be discarded. We neglected to mention here the many overhead costs beyond the field extraction that account for the VAT reclaim process. For receipts of certain value – the math just doesn’t work out, and many VAT reclaim service provides will simply toss the receipts out.
Here’s a random snapshot of about 2,000,000 expenses we saw at Way2VAT. We plot a histogram of the value in Euros; a count of how many receipts we’ve seen in a certain value range. For example, in the €10 range we have seen roughly 50,000 receipts. We can see a very big portion of the receipts are low-value receipts (< €20, marked in red). Note the horizontal axis is on a logarithmic scale.
One thing we can notice is that there are two peaks around the €10 mark. This amount is very common on receipts, which also follows pricing strategies and philosophies.
Giving up on the VAT in low value receipts by throwing the receipts away will be a painful waste. In the case of a €20 cutoff – we will be throwing away 43% of all the receipts! One solution to this problem we have at Way2VAT is creating tiers of invoice analysis. Lower tiers of analysis are cheaper and faster by being more focused and only extract partial data. Higher tiers are more expensive and slower, but they provide a complete analysis. The key is to know what the value on the receipt is without performing a full analysis. It’s somewhat of a chicken-and-egg problem. To determine if we do the full analysis, we must first do an analysis. This so called “partial analysis” is based on our AI automatic invoice analyzer.
Check back with us soon to learn more about how we do partial analysis as part of the recovery system.