I appreciate what follows is potentially going to be seen as contentious, so I apologise in advance if some of you perceive this as offensive, as that is not my intention.

The issue is straightforward. Many finance departments believe that their accounting processes are acceptable and many are unwilling to even listen to understand alternative methodologies perhaps because they did not think of it or they have a low opinion of the financial skills of the directors and budget holders in the business (so, what is the point?). Perhaps they like the status quo, namely ensuring that the people that spend the corporate funds are kept in the dark to ensure that all finance-related decisions remain under their control or financial information is “private” and not to be shared outside a select few?

However, there are also many finance directors who are just as frustrated with the current methodologies as the budget holders, but because finance is often seen as a necessary administration burden, they are always at the very back of the queue for any form of corporate investment. They would be ready allies in driving change!

Many finance directors are content that budget holders do not have access to real-time information about their suppliers, such as how much you are spending with them, the exact status of every invoice and whether it is under query or paid because they do not see the problem with it. If budget holders want to know this information, they need to ask someone in finance or see if they can find the information by searching through the filing cabinets – as if they had time!

Too many finance directors still believe that paper invoices are the best means of undertaking approvals, despite the fact they are simply printing 65% of supplier invoices, which arrive as PDFs via email. They don’t see fact that the budget holders need to be in the office to approve these as a problem, that they are maintaining their own records of their orders to verify they are priced correctly and then update their spreadsheets with the relevant values. Once budget holders approve an invoice, the invoices and associated information disappear forever into the accounting software and the filing cabinets. After all, why would anyone need this information?

Furthermore, many finance directors believe that delivering a management pack of data that is 5 to 15 days out of date on delivery that only tells budget holders where they are against budgets and projects spend is good financial management.

But, as we all know, good financial management is based on having the relevant information to hand BEFORE you make the commitment, not learning about your mistake weeks or a month afterwards.

To add insult to injury, finance directors use a chart of accounts analysis that bears little resemblance to the budget holders’ spreadsheets. It is a significant subset of the analysis they need and after they have applied depreciation, amortisation and interdepartmental cross charging, it is impossible reconciliation against their spreadsheets.

So why do budget holders keep spreadsheets if they are just duplicating most of the accounting process?

Simply because no matter how time-consuming, painful and tedious the process may be, it is the only way they can plan and manage spend to maximise the value it delivers. Given the spreadsheet’s importance to a budget holder’s diligent financial management of their department budget, how much recognition does finance give to it, apart from telling them it’s wrong and their accounts are right? The answer, unfortunately, is usually none.

However, this reflects the weakness in accounting and ERP applications, so it could be equally argued that the current processes are really no one’s fault. That would be true if there wasn’t a very cost effective alternative methodology that transforms the process and extends every accounting / ERP application.

The alternative methodology

  1. Invoice automation: Every business can get rid of all paper invoices immediately and move to 100% electronic invoice capture, online approvals from any device (including dedicated mobile applications) and deliver full visibility of all spend by every supplier, access to every invoice and immediate budget availability to everyone that needs to know.

Implications on finance

  1. Removal 50% of the current pointless workload relating to processing paper by accounts payable
  2. Reduction of the cost of processing each invoice from around £1.80 – £2.50 each to between £0.20p to £0.40p per invoice
  3. Reduced the approval process from days/weeks down to potentially under a minute, undertaken from any device
  4. Ensure all suppliers can be paid on a timely basis to drive a better relationship and potentially better pricing
  1. Purchase order automation: If you implement the discipline of raising a formal electronic order for everything you buy, using a web-based application that makes it incredibly simple and quick to achieve, it also delivers real-time budget management enabling smarter decisions before you spend the money. This also applies to all project related budgets. You have also removed many of the requirements to keep your spreadsheets, but as a minimum, you can now export the purchasing information directly into your spreadsheets automatically.
  1. Implications on finance and budget holders:
    1. Your supplier invoices are automatically captured, digitised, reconciled against your order, exceptions highlighted and delivered ready for approval within seconds of the invoice being sent.
    2. This just removed at least another 25% of the current accounts payable role (75% in total with invoice automation).
    3. Exceptions/queries are captured, flagged as someone specific responsibility to resolve with automated notifications to keep the wheels turning – let’s face it, finance now has the time to manage this!
  1. Project management automation: You can create planned and actual projects and see the real-time implications of both in terms on budget availability today and as far into the future as you plan. You can move future planned project dates and see the implications at any time. You also will see when a project is starting to overrun and take the most appropriate action before it becomes an issue. You are in control.
  1. Implications on finance:
    1. Removes the need for finance to both create and maintain project management information within the accounting software, saving yet more time
    2. Ensures that everyone has a real-time view of the project related spend, as it takes place allowing the business to identify and then manage variances as they happen.
  1. Spreadsheet replacement and automation: Instead of using the accounting chart of accounts analysis on your electronic orders, you use your own analysis (conveniently hardwired to the relevant general account in the background) and allocation the relevant costs to your own projects.
  1. Implications on finance:
    1. Finance teams are given the responsibility to correctly account for every order as part of the approval process
    2. Capital depreciation, prepayment accruals and associated financial analysis are addressed at the outset
    3. A single real-time view of the financial truth, available to everyone that needs to know
  1. Implication for budget holders:
    1. You now make the most financial informed decisions possible, every time as all the information is at your fingertips
    2. You save a huge amount of time by removing your spreadsheets and all of the accounting duplication of work that entails
    3. Order and invoice approvals take seconds, from any device
    4. The value of the out of date monthly management reporting is reduced significantly, as everyone is looking a single version of the truth, in real time for every aspect of spend
    5. You maximise the value of your available budget to progress your department as far and as fast as possible.

So why are finance directors (kings of the ROI argument on everything you want to spend) not aggressively arguing that they need to change? It obviously isn’t about the cost.

Perhaps it is time for budget holders to get together (perhaps as the board of directors) and raise the matter with their finance director as they are just unaware of what is rapidly becoming standard best practice for next generation financial management.

Because good financial management happens by having the best information available BEFORE money is spent and everything else is just accounting.

Find out more by visiting www.compleatsoftware.com.

Leave a Reply

Your email address will not be published. Required fields are marked *