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View all newsroomMargin leakage is value a business has already agreed or earned, and then loses, because what was agreed, delivered, billed and paid no longer match.
It starts after the price is set. It hides in the hand-offs between teams and systems. And it can be stopped before money moves.
Definition
margin leakage (noun)
The loss of contracted or earned value that occurs when a transaction's agreed terms, delivery evidence, billing and payment do not match. Pricing decides what a business intends to earn; margin leakage is the failure to realise what was already agreed.
Also known as: contract value leakage, value erosion, revenue leakage (sell side), overpayment leakage (buy side).
It rarely shows up as one large loss.
An outdated rate. A shift invoiced but never worked. A service delivered but never billed. An invoice paid twice. On their own, each looks minor. Across thousands of transactions they add up, and because they fall between systems and teams, no report has a line called ‘leakage’.
The business impact is value you agreed to keep but did not realise: supplier overcharges raise costs, unbilled services reduce earned revenue, and duplicate or unsupported payments take cash out of the business. These gaps can reduce profitability without a change in pricing strategy or anyone acting dishonestly. Checking the agreement, delivery evidence, invoice and payment together makes the difference visible.
The framework
When all four agree, margin lands as planned. When any two disagree, value leaks.
What you committed to.
contracts · rate cards · POs · amendments · policies · delegations
What actually happened.
receipts · timesheets · rosters · usage · site sign-ins · carrier data
What was invoiced.
supplier invoices in · customer invoices out · credit notes
What money moved.
payment runs · cards · account-to-account · bank details
Gap 1 · Supplier side
Agreed ≠ Billed
Billed above what was agreed.
A supplier charges $108 when the contract says $95.
Gap 2 · Customer side
Delivered ≠ Billed
Delivered but not billed.
A service is provided, but no customer invoice is raised.
Gap 3 · Payment
Billed ≠ Paid
Paid twice, early, late or to the wrong place.
The same invoice is paid in two payment runs.
Margin leakage is not one problem. It is three gaps between four records.
The three types
Each type is defined by which records disagree.
Paying suppliers more than the contract, rate card or delivered work supports.
Delivering work, services or usage that is never billed, or billed below what the contract says.
Money leaving the business that should not, or not in the way it should.
Why it persists
Each record lives with a different team, in a different system, on a different timetable.
At every hand-off between these teams, nobody is responsible for checking that the records still match.
The size of the problem
lost by Australians to payment redirection in 2025, up 9.3% on the year before.3
Published figures measure different things (contract value, revenue, spend) and are mostly self-reported. The only number that matters is yours, measured line by line on your own transactions.
Timing is the control
After payment · sampled · months later · fees on what is recovered · partial.
After payment · every transaction · days later · still a recovery.
Before payment · every transaction · at approval · nothing to recover.
Where are you?
Leakage found by accident, or by a supplier or customer.
Run a 12-month baseline.
Periodic samples; findings arrive months later.
Test every line, not a sample.
Recovery audits claw some money back; the same issues recur.
Fix the control, not just the cash.
Every transaction checked, but after payment.
Move the check before approval.
Every transaction checked against its agreement and evidence before money moves; leakage reported to the board.
Govern new contracts from day one.
Every check traces to a clause, rate card or approval, not a generic rule.
Leakage hides in the lines no one tests.
The cheapest dollar to recover is the one never paid.
Delivery is proven by receipts, rosters, sign-ins and usage, not by the invoice.
Findings arrive with the clause, the amount and the evidence; your team approves, holds or corrects.
Leakage found, prevented and recovered, reported in dollars to the CFO and board.
Variations and progress claims paid without approved evidence; shifts invoiced but not worked.
ExploreField-service invoices above the rate card; network costs not passed through.
ExploreAgency and supplier invoices above contract; duplicate payments.
ExploreRepairer invoices above panel rates; payouts and commissions outside the agreed terms.
ExploreRebates and volume tiers never claimed; freight billed above the agreed lane rate.
ExploreUsage delivered but not billed; subscriptions paid for but unused.
ExploreCarrier costs with no matching customer bill; ceased services still incurring cost.
ExploreRedOwl
Twelve months of your own transactions, reconciled against your contracts, rate cards and evidence. A baseline in days.
Every invoice, payment and card transaction checked before approval. Each finding comes with the clause, the amount and a recommended action.
Leakage found, prevented and recovered, reported to the CFO and board.
Margin leakage is value a business has already agreed or earned, and then loses, because what was agreed, delivered, billed and paid no longer match.
No. Setting prices and discounts is a commercial decision about what you intend to earn. Margin leakage is what happens after the price is agreed: being billed above it, failing to bill to it, or paying outside it.
Fraud is deliberate deception. Margin leakage is lost value, and most of it happens in good faith: an outdated rate card, a missed rebate, a delivered service never billed. Fraud is one cause of payment leakage, but stopping fraud alone leaves most leakage untouched.
Supplier leakage (paying more than agreed or delivered), revenue leakage (delivering or incurring cost without billing as agreed) and payment leakage (money leaving that shouldn't, or not as approved).
Wherever records pass between teams or systems: between contracts and supplier invoices, between delivery records and customer billing, and between approvals and payment runs.
World Commerce & Contracting and Deloitte found organisations lose an average of 8.6% of contract value, from about 3% for the best performers to more than 20% for the worst. Your own figure depends on your contracts and controls, and is best measured on your transactions.
By comparing each transaction with the agreement and evidence behind it, adding up the differences, and stating the result against a clear base: spend, revenue or contract value.
Ultimately the Office of the CFO, because leakage crosses procurement, operations, accounts payable, billing and treasury. That shared ownership is why it persists.
By checking every transaction against its agreement and evidence before money moves, rather than auditing a sample afterwards. RedOwl connects contracts, delivery evidence, supplier costs, billing and payments, and flags mismatches before approval or payment.
A leakage baseline on twelve months of your own transactions can be produced in days. The same checks then run on every new transaction.
Worked examples are illustrative. Figures describe the sources cited and are not RedOwl customer results unless stated.
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How much value is leaking?
Start with twelve months of your own transactions. See your baseline in days, then turn it into controls that run every day.
