Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

Five things you can do to save money

by
26th Oct 2009
Save content
Have you found this content useful? Use the button above to save it to your profile.

Neil Robertson of Compleat Software offers FDs advice on how to regain budgetary control and maximise the way the company spends its hard-earned cash.

If you think you’re pretty good at staying on top of your cash position, have you ever featured in any of these dramas?

•    The Phantom of the Finance Department - After the month end an ugly surprise arrives in the shape of an invoice you knew nothing about. Someone may have sat on it, or perhaps the maths was wrong in their budget spreadsheet. You’ve got a monster in your hands that will wreak havoc on your budget and cashflow.

•    Dude, Where’s my Invoice? A key supplier has put your account on stop. The supplier’s credit control department rang to ask for a cheque, but you had no record of it. The invoice went out to the authorising manager (followed by a copy), but for whatever reason they never sent it back.

•    The Gold Rush Approvals take place weeks after the accounts have been closed, so a significant proportion of your expenses are approved after the month end, making it almost impossible to curb maverick spending.

•    Supermarket Sweep Habitual buying patterns drain away your cash - managers buy top of the range laptops, when mid-range equivalents are more than powerful enough for their needs; or maybe you’re buying 100gsm paper when 80gsm would do the job.

•    Blood on the Carpet You had to stand up in the boardroom and be held accountable for over-budget spending resulting in an inaccurate cash flow.

Five money-saving tips

1. Make the people responsible for buying stuff responsible for getting the best price.

2. Get buyers to record what they’re ordering and introduce a system to capture that information so that finance can track commitments instantly in the correct period.

3. Run a report on monthly turnover of suppliers, sorted in amount order. That will tell you where you spend your money. Look at how many firms supply services and products that are exactly the same. 

4. Count how many bottles of wine appear at Christmas and monitor who gets them. Ask why. Break cash-draining purchasing habits and focus on suppliers who will give you the best deal throughout the year.

5. Calculate how much cash you would save if you could trim just 1-2% from your annual expenditures; then consider what effect you could have if you were able to exert more active control over your spending. 

Why cash really is king
The most important asset today in the business is cash, yet the methodology we’re using hasn’t changed since the 1900s.

When times are tough, being efficient and making the best use of your cash is what we call a no brainer. It’s so much simpler to save money than recoup it through selling more. Any savings you make are net to the bottom line and there’s no capacity issue, because there’s no fulfilment. It’s instant.

Mike Risley, the managing director of Benteq, recently told me: “If you save £100,000, that’s not like selling £100,000 more. It’s nowhere near. If your cost of sales run to 80%-90%, it’s closer to selling £1m of goods and services.”

Most finance directors recognise that they are often the last ones to find out how corporate cash is being spent. This article is all about putting FDs back in charge of how cash is spent, when it can be spent and what can be purchased.

The case for automation
Over the past three decades, FDs have automated the finance functions of their businesses with integrated accounting systems and sophisticated management reporting tools. But the way they control how cash is spent is still manual.

In 2009, most companies rely on a system that involves writing out multi part  paper sets for orders and putting purchase invoices in envelopes to get them signed off and filing them. It’s a slow, error-prone process. When it comes to trying to say how profitable the company is and what the cash flow is at month end, finance managers typically have to accrue up to 40% of these costs because the invoices haven’t got through yet.

With manual budgetary control, the chances of capturing all the transactions going around the system are very remote. That’s why budgets go wrong and things get missed or forgotten. Often the first time you find out about a disaster will be just a week or two before you have to pay for it.

Capturing cash commitments
How useful would it be to know every purchase commitment and its cash flow implications on a moment by moment basis? Automating your purchasing and payment systems can give you that sort of control. Capturing information within your accounts on orders that have been placed and invoices yet to be approved would tell you your exact cash requirement at any moment and solve the month-end accrual problem.

Clamping down on the number of suppliers you use and negotiating more favourable prices from key suppliers can bring you 1-5% in savings. Managing discretionary costs by limiting discretionary spending on non-essential or over-specified products could save another 1-4%. But it’s difficult to control maverick spending through education alone.

If every requisition was electronic and automatically correctly coded to the relevant general ledger department and account, then budgets, suppliers, products and services could be locked down to enforce spending rules and limits.

Automating the entire purchase to pay process not only puts the finance director in control of spending, it can eliminate many of the authorisation and processing bottlenecks that throw spending plans out in the first place. The paper chase just disappears. Approvals can be automated and invoices that match approved purchase orders and delivery notes can “self approve” and post themselves directly into the accounting ledgers so they reflect the true of corporate financial commitments and cash requirements.

Looking for a happy ending?
If this scenario sounds like a fairy tale, it has been happening in the corporate world for more than a decade. Compleat Software has created a web-based procurement-to-pay system that is easy to implement and addresses all of the situations that have been covered in this article. If you’d like to discuss ideas for spending controls with like-minded finance managers, find out more about Compleat’s half-day workshop programme.
 

Tags:

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.