The shipping and delivery cycle time race amongst valuable brands like Amazon and Walmart is a fierce one. Many parcel companies like UPS and FedEx may offer discounted rates for delivering on time but the real question is, “Are they actually delivering on time?”
By implementing effective visual internal controls, your company’s accounts payable team may be able to identify delivery discrepancies per regular parcel audits and if they are found you are not required to pay them.
Other things to look for while auditing would be:
- Duplicate Invoices: Parcel vendor may generate duplicate invoices with different purchase order numbers, tracking numbers, invoice numbers, et cetera.
- Discount Rate Verification: Thorough analysis of the invoice is critical for the purpose of ensuring that the proper discount rate was included.
- Improper Billings: Sometimes there are multiple parties involved and you could be billed for the shipment when your contract specifically stated that “Vendor XX” was responsible for payment. You should integrate freight audit software into your accounts payable process to mitigate this risk.
- Rate Verification: Essentially, your accounts payable team should be ensuring that the rate base, math, mileage, product classification and weight all match your purchase order and contract agreement, otherwise you are overpaying.
- Fuel surcharges: It is important that this charge matches what is in your contract and not the current market rate.
Auditing offers the opportunity to gather critical data, such as, shipping spend by origin, destinations, general ledger codes, customers, fuel charges, vendors and carriers. This data can be used to improve your financial planning and analysis, and offer opportunities to streamline processes and realize cost innovations.
Purchase order approval audit trails and visual bill entry controls can be an effective way to reduce the time it takes to resolve Accounts Payable errors and keep your vendors happy.
Visual management allows for standardized visual controls that are visible to all Accounts Payable (and also accounting team) on how approvals should be obtained for a purchase order, how to document these approvals, and how to enter bills into the accounting software. Visual controls are effective because the accounting team will see them everyday and there should be a constant review of them and essentially they should all be processing Accounts Payable the same way.
Visual controls are like visual checklists for your Accounts Payable team. These controls should be placed in high traffic areas where your accounts payable team will see them. A copy should be placed by each members desk as well and update them of course accordingly to business changes.
For recurring fixed bills, automation is a given. For example, lets say company HBN gets billed from Microsoft $17.95 for a productivity application every month a recurring transaction can be created in Quickbooks that will automatically create the bill every month. This significantly reduces manual entries and overall cycle time.
To reduce manual entries of non-fixed expenses you can create templates in Quickbooks (or other accounting software) in which they can be duplicated and make the changes needed per your company’s data entry controls and new bill specifications (purchase order, invoice #, et cetera).
Critical KPI metrics that your company should be tracking and analyzing in regards to Accounts Payable are the following:
- Total Cost of an AP invoice
- Overall time to complete the AP process
- Overall time to resolve an AP error
- Percentage of manually entered invoices
- Number of full-time employees that perform the AP process, per 1 million (billion) in revenue
- Percentage cost to perform the AP process as a percentage of total process cost
You should periodically compare these metrics with industry and competitor data to see where you stand and where you need to improve.
In conclusion, standardized visual controls for Accounts Payable is a great way to ensure the AP process is done the same way by all AP personnel.
“Did you know that if your company leases its space from a multiple office building you can have your key financial representative analyze how utility charges are distributed amongst all tenants. This can help you realize savings and offer a negotiation opportunity based on your company’s utility use.”
It is always good to be prepared. In business being unprepared for the unexpected could lead to loss of clients, reduced profits, damaged reputation, et cetera. Small business are not exempt from this either. Budgets and Forecasts need to include a reserve for the What ifs, such as, what if the office gets flooded?, what if a machine breaks down and a replacement is required ASAP?!, What if our supplier’s plant gets flooded?
Many companies use historical budgets (utilizing and analyzing past expenses from 3-4 past fiscal periods) to see revenue and expenses trends and using this information to create the current budget. The problem with this budget method is that it does not consider the future, therefore, it is impaired by the unforeseen. To minimize this risk, companies should assess all business operation risks and add reserves for the accounts that have “high budget risks”.
For example, let’s say your business is growing and you just finalized a big contract deal, but this is now the 2nd quarter of the fiscal year. Now you have to analyze sales, hiring and purchasing forecasting data and update the budget accordingly. This is also true when you lose a big client, you have to be prepared to revise your budget despite efforts to replace the lost client to ensure profitability at the end of the year; meaning cutting costs.
Continuous budgeting ensures that your company is abreast of all risks, revenue and expenses trends that are and could affect the company. Companies that have a frugal mindset (e.g. Apple, Microsoft, Google) and hoard their cash are always prepared for the worst. Historical budgets essentially just demonstrate the past and provide a budget amount base for all your accounts but you have to ensure sales demand, hiring, purchasing and risk data is taken into account to finalize the budget properly and update accordingly per any changes in the business.
1) Encourage suppliers and clients to re-use containers/boxes
2) Decrease lot sizes
3) Actively share demand forecast and inventory data with suppliers to ensure efficient purchasing and timely inventory replenishment
4) Develop a quality plan and actively (Quarterly checks) ensure supplier is meeting quality requirements by conducting an on-site visit
5) Use total cost method and mutually beneficial long term contracts to build strong partnerships with vendors
6) Integrate a customer service chat feature on your website
7)Utilize electronic billing
M&A: The Process, Software and Tool Abyss
Here comes a merge! Essentially with a merge comes the dilemma of choosing the most effective process, software and tools used for daily business departmental functions. For example, it may be that the two companies use different accounting software, in turn, an assessment now has to be made whether to use one or the other or acquire another software that can handle the current business requirements. To streamline this process a team has to be assembled consisting of atleast 4 per department from each company (that is well versed in the processes and controls of the department). They can then create process maps (visual representations of a process that help identify non-value added activities) and share them with the merging team. With a merge follows new operational and strategic goals, therefore, by collaborating and sharing departmental process information decisions about which process, software or tool becomes much easier.
Employees don’t want to be handed books of paper about the benefits available to them through your company. They need guidance on which medical, dental, and retirement plan to choose. Therefore, to increase overall employee satisfaction and improve your benefits administration process I suggest the following:
1. Utilize the Voice of Your Employee by conducting surveys, such as, how often they want benefits related information to be provided to them, what communication channels do they prefer to receive the information (videos, PPT, mobile, intranet, email, et cetera).
2. Create personalized material to fit critical variables based on survey data and employee goals.
3. When you identify how often employees are willing to see benefits information make sure to create a calendar of when this information will be distributed and actively survey employees on what topics they want to learn more about (make sure the content is not too long, gets to the point, and is easy to understand but also fun too)
4. Utilize or create a single platform that offers all benefits information because this reduces the need for multiple passwords/websites.
5. Set time every quarter to discuss benefits and explain to employees why premiums increase every year. Also have your broker be part of the meeting so they can offer advice to employees on which plan is best for them or answer any questions they may have.
6. Comparison shop every year to see if you are able to find a more cost-effective plan by using the total-cost method (e.g taking into consideration the overall cost of the plan includes broker fees/commission, admin fees, et cetera) See this entrepreneur article for more information.
7. Continue to survey employees every Quarter because many things can change in their lives in just 3 months. You have to stay abreast to those changes so that relative guidance, content and information can be readily available to them so they can make smart decisions.
Automation of general accounting functions is not only for large corporations, small businesses can reap in the benefits as well. One of the most important costs you should be aware of is the cost of an invoice. Are you or your accounting personnel spending too much time creating and inputting bills and/or invoices into your accounting software? There are many tools that can assist in helping you reduce these general accounting costs but today I will be discussing a feature in Quickbooks Online that aids in the automation of Accounts Payable and Accounts Receivable activities.
Let’s take a look at Quickbooks Online. How much time are you allotting for entering and processing bills and invoices when that time can be used to better serve your customers and increase sales? Did you know that Quickbooks Online has a feature named, “Recurring transactions”, that allows you to automate your fixed bills and invoices. The time saved by using this feature will allow small business owners to optimize their customer satisfaction ratings.
The “Recurring Transactions” feature, allows you to schedule bills and invoices. You can set when you want the invoice to be created and how often it should be distributed (e.g., weekly, monthly, yearly, et cetera ). Great care should be taken of course when creating the template. It is highly advised to only use this feature for fixed bills and invoices.
The benefit for small business owners who use this feature is tremendous. It means less manual entries, which in turn, allows for more time to do more of what they love.
Next time we will discuss the importance of continually assessing your insurance policies to ensure your are properly covered for current and potential business risks.