Tax Reform: The best way to utilize tax savings

The new tax law will offer tax cuts to businesses which raises many questions among leaders as to how to best utilize that capital/ tax savings. Many companies have decided to invest in their people by giving away generous bonuses which embodies the employee-centric philosophy. In addition, to demonstrating your appreciation for your employees you also may find the following tips useful.

  • Set a % amount to be automatically transferred to a high yield savings account
  • Reinvest a percentage of the tax savings into your business
  • Utilize a portion to pay future taxes (again, a high yield savings account dedicated to taxes)
  • Optimize your employee benefits package
  • Invest in municipal and treasury bonds (offer great tax savings)
  • Make those business building improvements you’ve been putting off (another great tax deduction)

I hope you’ve enjoyed these tips!

As always, “Success is continuous improvement!”

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Lean Wednesday Tip: Tax-minded CFO

“An effective CFO, Finance Manager or CEO is extremely tax-minded. Executive top management (boards) are more inclined to offer security, incentives and praise to an accounting/finance executive that consistently delivers a low tax bill.”

Lean Wednesday Tip: Customer-centric digitalization

“Companies that stay abreast of consumer behavior changes and priorities coupled with a dedication to a customer-centric philosophy will always yield a greater market share. Effective leaders integrate new technologies wisely based on the company’s capabilities and it’s ability to optimize client satisfaction and profitability.”

Days Sales Outstanding: Get Paid Faster tips

You’ve made a sale! That’s great but the customer hasn’t paid and the invoice is now 90 days past due. This scenario is common amongst many businesses. Many businesses resort to offering extended payment terms but this is a bad idea because it affects their cashflow. What you really want is client satisfaction because when the client is happy they will quickly remit payment for the service or product that was provided to them coupled with strong A/R controls and processes that ensure you get paid in a timely manner.

By developing and comparing critical A/R KPI metrics (cost per invoice, process cycle time, payment turn-around, et cetera) to industry and competitor data you are able to realize opportunities for improvement in DSO. Finance executives can use this knowledge to reduce DSO with the company’s capabilities and ability to sustain DSO process controls in mind.

A client’s ability to pay on time is based on their credit risk. Finance Executives should stay abreast of client industry and market shifts, require and create a client financial stability plan when pursuing clients to ensure they are financially stable and are not slow payers. Some companies may be apprehensive about requesting a credit history in fear of losing an attractive customer, however, incentives and credit risk insurance can be offered to offset this possibility.

Payment terms should be made clear to clients by various communications, such as, the invoice itself, on-boarding materials, introductory emails, et cetera. These payment terms should also be in agreement with common industry practice and customer needs and expectations. For example, if clients are billed per retainers/retention, it is best that you require an initial upfront payment. Other ways to safeguard cashflow and ensure faster payment would be to offer broad payment options (ACH, Check, wire transfers, PayPal, Credit Cards, et cetera), payment plans and quick pay discounts.

Overdue receivables should require constant and daily communication with clients to understand the reason for the payment delay, offer payment solutions or optimize value.

The billing process is critical to the reduction of DSO because it should run smoothly. Meaning invoices should be created and sent on time, have no errors, and contain all the appropriate information. Incorrect charges, incorrect rate discounts and mailing addresses are all things that can delay payment. It is also important to update customer profiles in accounting software with contract agreements and up-to-date contact information.

Companies should regularly convey and update their A/R controls and processes. They should utilize the voice of the customer to gather data that can help improve those processes, support clients falling on hard times by offering payment plans, and develop client-centric processes for handling non-paying customers, including guidelines for managing disputes and turning over invoices to a collections agency.

Top management must commit to these DSO reduction efforts and have continuous conversations about A/R controls. They should make these controls visual so that everybody can see them and audit the process periodically. By continuously staying abreast of DSO metrics and making improvements as the industry and company changes will ensure that employees understand how important these efforts are to the company.

E.O.W(End of the Week) Notable Tip: Return on Assets

Happy Friday!

I hope you’ve had a great week.

Today, I would like to discuss return on assets. Effective companies utilize their assets wisely by ensuring for example that low margins are supported by an equally low asset density coupled with the ability to remove waste and inefficiencies from processes. Continuous investment in assets and continuous improvement of processes yields better operating asset efficiency and is good for shareholders as well. Asset depreciation with a stagnant revenue stream is not good for shareholders as the net-to-gross ratio tends to decline as assets age without the appropriate replacements or investments being made.

I hope you’ve enjoyed this E.O.W and as always, “Success is continuous improvement.”

 

 

How to stop Freight Charges from eating away at profits

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.

A Visual Management Approach to Accounts Payable

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.

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