Best Practices
- Accounting & Finance
Best Practices – Accounting & Finance
Decision-makers such as the Directors, CEO, GM, and Executive Members of an organization may potentially finalize a strategic plan which encompasses a series of changes in the core activities of the business. These changes impact major aspects of the operations, from high-level core segments encompassing customers, products, and markets to lower segment areas such as efficiency improvements of existing systems as well as tightening of risk management areas. The relevant missions are subsequently passed down to a group of managers for execution. Managers may be equipped with relevant proficiency in their daily tasks but when it comes to realizing greater efficiencies in existing processes or even obtaining more information out of existing departments and the systems that support the existing departments, these expectations will pose immense challenges to the managers. This is where the best practices come into the picture. In simple terms, our team defines best practices are a concept that encompasses any improvement over existing systems, although it may vary among different groups of consultants.
Attributing to the broad coverage of best practices, we perceived best practices to be anything from improving efficiency from minor assignments such as adopting blanket purchase orders rather than a specific purchase order and using procurement cards for major projects such as streamlining purchasing, spending, and accounts payable functions. Outputs of best practices may also be extended to improvements of existing reporting systems which facilitates more precise reporting of information catered to specific needs of the management and reports are made available promptly, allowing management to initiate immediate corrective actions. In addition, companies can further benefit from reduced transaction errors by automating specific functions such as automated bank account deductions, simplified commission calculations, or employee expense reports.
Our experiences reveal best practices are also nuts and bolts in the fulfillment of the company’s strategies. Without the best practices in the existing systems, the company’s strategies are highly likely to fail. The primary reason for this conclusion is through the best practices, large amounts of resources, such as workers and employees, and extra time and capacity, can be unleashed through improvement in overall efficiency. With the presence of these additional resources and capacity, there is a much higher chance of success in executing the company’s strategies simply because there are now more people who have more time can participate in these other strategies. In addition, the company’s cash which was previously needed to support the operation will be reduced significantly through efficiency improvement. This also means there are more cash resources to be set aside to support new strategies, which further guarantees the success of new strategies’ implementation. Thus, the best practices are a linchpin of a successful corporate strategy and can also lead to improvements even if they are not part of a grand strategic vision.
Unfortunately, our service scopes do not encompass a complete set of best practices that a company should consider. We specialize in those areas applicable to the accounting department, and best practice in this function is the center of best practice methodology. Accounting functions are heavily procedures driven, and under this nature, it presents many opportunities to enhance the multitude of procedure steps through various best practice practices such as automation, task elimination, simplification, outsourcing, error-detecting, proofing, and many more. Under this connection, as compared to other corporate functions, the accounting function is the one that reacts best to the best practices.
To better understand the scopes of our service providers in the aspect of assisting in introducing the best practices into an organization, we invite you to refer to the respective segment outlined as follows.
Accounts Payable Function
In most companies, operating an accounts payable function requires an intensive amount of personnel and therefore it opens room for cost savings should the best practices are successfully implemented in this function. In the nutshell, the fundamental process of this function deals with three main types of documents – supplier’s invoices, purchase orders issued by purchasing department, and receipt notices issued by the receiving departments when ordered goods have arrived. Personnel from the accounts payable function match all these documents before releasing the payments to suppliers. The process although simple but requires an extensive amount of human engagement in line with the significant amounts of matching tasks and to make the situation worse, the three documents often deviate from each another and they hardly match.
In conjunction with the mass amounts of matching exercises involved, the best practices in this aspect generally aim to reduce the matching works by adopting the practices of using procurement cards, reducing the number of suppliers through supplier consolidation exercises, and many more. Another aspect of best practice in the accounts payable function is to reduce the amount of receiving documents, and this usually requires the direct input of goods receipts into the computer systems. Furthermore, depending on the industry in which the company operates, some may adopt the practice of authorizing payments based only on receipt notices. In short, it’s impossible to employ all the best practices in the function since some of these practices are mutually exclusive. One must choose the most relevant and applicable to the company. Our team specializes in restructuring the entire accounts payable function to introduce installed best practices into this area. However, a company needs to recognize the potential sizable investment of money or time, and therefore, it is equally important for our team to assist the company with assessing the availability of existing resources before embarking on an implementation.
Billing Function
Our team specializes in introducing the best practices that can be used to create a more efficient billing operation. Best practices in this area generally fall under three main categories outlined as follows:
Category 1: best practices that relate to the accuracy of creating an invoice. This requires an error-free interlink of information between the shipping department and the billing department. The end output of best practice from this category is an invoicing operation with minimal error or error-free.
Category 2: best practices that relate to the efficiency of invoicing operation itself. The relevant activities may involve substituting month-end statements with new improved invoices which contain a smaller number of multipart information.
Category 3: best practices that relate to delivery invoices to customers. Activities may include the use of an electronic form of invoice or simply allowing invoices to be issued at the delivery point rather than the point of goods received by customers. The end output of best practice from this category is that invoiced are issued as soon as products are delivered, and customers receive invoices almost at the same time as the products delivery point.
Budgeting Function
Despite budgeting is extremely useful for any organization in many core aspects of operations, ranging from setting performance targets, resources allocation, and support of business strategies and key initiatives, to performance measurement of respective departments and many more, most organizations overlook the benefits of which a well-prepared budget can be brought into their businesses. Some even went through the excruciatingly slow and painful in creating a budget document, but it is neither supported nor followed by anyone in the organization. Our team could assist in addressing these problems, starting with gaining support from management to simplifying the budget development process. There are a wide variety of best practices that can be introduced into the budgeting process including but not limited to step-costing points, activity-based budgeting, defining capacity levels, and many more. In addition to these best practices will make the budgeting process simpler, the output of these best practices is a budget document with relevant projected financials that are more accurate and closely match the management’s expectations in the upcoming projected periods. Furthermore, in making sure the operations operate within the stipulated budgeted financials, our team could assist with introducing several best practices that integrate budget into the daily operations of the company.
Cash Management Function
Our team specializes in introducing best practices that can be used to create a more efficient cash management function. Best practices in this function in addition to assisting with creating a smooth and orderly flow of cash into and out of the company, the ultimate goal is to ensure the cash in the system is utilized to the fullest extent so that there is no cash in the company. The best outcome of managing the cash is to set aside the smallest amount to support daily working capital requirements and frees up the largest possible amount of cash for investment purposes.
Collections Function
One of the biggest challenges faced by personnel who are in charge of the collections function is collecting overdue accounts receivable. Naturally, the first thing that came to everyone’s mind on long-overdue accounts receivable is the customer’s fault but, in most circumstances, it is not the case. Our experiences suggest there are many valid reasons causing customers to wait on payment on invoices, ranging from incorrect information in invoices such as wrong pricing and amounts, receipts of damaged or incorrect goods, and many more. The situation is worsened when these issues are not properly followed up by the company promptly which further delays the receipt of payment. For those cases of collection problems that are caused by the customers, collection personnel needs to factor in a diplomatic approach in bringing pressure onto the customers, and this can be a very challenging task that requires specific skill sets. Irrespective of the reason causing an overdue invoice, it is the primary duty of the collections personnel to ascertain the correct reason for the problem and fix it.
Our team could assist with providing various best practices in this area, including reducing the error rate in invoices to customers, introducing a new approach to exerting pressure on customers to pay by the due date as shown in the invoices, and a series of other best practices that could further enhance the operational efficiency of collection personnel. In short, our objective is to simplify collections tasks, while reducing the amounts of overdue accounts receivable simultaneously.
Credit Function
The credit function is a highly underrated function whereby a surprisingly large number of companies do not have this function despite its importance and the significant amount of benefits that can be brought to an organization. The common practice in most companies is to issue invoices and hope that customers will pay on time. Collection actions and credit analysis exercises are initiated by management only after the company has accumulated several significant uncollectible debts or bad debts. The primary reason for a poorly-run credit function is usually the lack of funds or refusal to allocate sufficient funds to cater to this purpose because management lacks the correct understanding of the needs of having a well-run credit function and how the imposition of a comprehensive set of operating policies and procedures could minimize the losses caused by the uncollectible debts.
Our team specializes in many best practices which a credit department can adapt to tighten or ease its credit policy to meet different circumstances. In addition, we could further recommend what aspects of customer information are useful in credit assessment, what factors to consider in extending customer credit and the relevant tools in doing so. The presence of a complete set of applicable and well-designed policies and procedures could escalate the efficiency of the credit department at a tremendous rate within a short timeframe.
Commission Function
Commission expense in most sales-driven organizations is considered one of the largest expenditures simply because its driven primarily by sales. Many best practice activities can be introduced into this function but the company needs to bear in mind these best practice actions only aim to improve the operations of accounting departments and none of which should worsen the systems in the sales department, in particular those best practice actions that may potentially impact the morale of sales team in a negative way. For example, the best practice of simplifying the commission calculation structure which may make the task of commission calculation easier for accounting staff, but the simplified calculation model may result in a less competitive compensation package for the sales team. In this connection, we strongly recommend before a company attempt to install any best practices in the commission function, it is best to first obtain approval from the sales manager and/or the departmental head of the sales division on any changes that may affect the sales department directly or indirectly. Despite the underlying concerns, there are a surprisingly large number of best practice actions of which our team could assist in streamlining the calculation of commissions and developing fast and secured ways of commission disbursement to sales personnel.
Costing Function
The costing function encompasses the computation of product costs and inventory valuation. Best practices in the costing function are generally grouped into 3 categories as below: Category 1: Accuracy of data and information. Best practices in this category deal primarily with the accuracy of the key information required for inventory costing. For example, labor routings, units of measurement, bills of material, etc. Category 2: Preparation of Cost Reports. The best practices in this category cover a range of cost reports. Category 3: Costing systems. Best practices in this category adopt a more sophisticated system such as activity-based costing (“ABC”), throughput analysis, Just-In-Time (JIT), and target costings system. Our team specializes in installing the best practices surrounding the 3 categories mentioned above and with the successful implementation of these best practices, the new improved costing function will assist the management of the company to acquire a better and more accurate understanding of its production costs and in turn allow the management to better monitor and control these costs.
Filing Function
It is no surprise best approach methodology is also applicable to the filing system of the accounting department to make the filing function operates more efficiently. It is important to note the service provided by our team does not focus on doing a better job of filing documents. On the contrary, the focus of our team is to introduce the best practices and find ways to reduce filing or completely avoid filings, since is a non-value-added activity. Best practices and activities may encompass the use of electronic forms and documents, introducing policies and procedures in reducing the use of paper documents, destroying old documents, and many more. Since the clerical work correlates to the volume of paper documents, the reduction in paper documents will also mean a reduced level of clerical workloads plus less space required to store these documents. The end output will be freed of more human resources and cost savings.
Financial Statements Function
Our service scope covers the best practices in the aspect of accelerating the issue of financial statements and per our experience, this is one critical aspect that should not be neglected. As experienced by the accounting department of most companies, the creation of quality financial statements is a complex and time-consuming task as compared to all other accounting-related activities. The common results as we have evidenced comprise insufficient time for accounting personnel to complete other essential tasks and frustrated management who either never receive this information on time or leave the management with little time to fully review and understand the financial information as embedded in the financial statements. These are serious issues that can be eliminated by introducing the best practices to the process.
The primary approach adopted by our team is to streamline the process of financial statement creation, and this approach encompasses several activities including avoiding bank reconciliation, automating the month-end cutoff process, and other related tasks which normally took place before the end of the month. Some of these best practice activities are simple and therefore easy to be installed into an existing process. However, some best practice activities such as automating the month-end cutoff process may require additional work and could be exposed to the risks of inaccurate financial statements. In addition to proposing relevant best practices activities, our team could further assist with reviewing the proposed best practice activities carefully to identify and select those activities that would not interrupt the production of financial statements as well as expose them to poor quality risk.
Internal Audit Function
The internal audit function is a common function that is not only found in most publicly-held companies but also in sizable private companies supported by nationwide affiliated subsidiaries and branches. Traditional internal auditing typically operates similarly to external audits except internal auditors do not pursue annual reviews on financial records but rather deal with operational and internal control issues frequently. However, under the existing recruitment practice of commonly hired internal auditors mostly from external audit firms, the old habits and training experiences as external auditors have been brought to the internal audit functions, and as a result of which, internal auditors conduct their audit works just noted. Our opinion on the internal audit function is very different and by installing the best practices in the internal audit function, it can switch from a systems reviewer to becoming an active partner to the management, and through the role of an active partner in business, significant benefits can be brought to the company. Our team specializes in introducing the best practices in this aspect which primarily focuses on revising the existing role of internal auditors to become active business partners.
Furthermore, another critical aspect of the best practices in the internal audit department is the improvement of work efficiencies within the department. Our experiences suggest typical hurdles commonly faced by internal auditors may include unfinished paperwork, difficulty in prioritizing allocated tasks, multiple deadlines, and many more. A variety of positive changes that our team has previously brought to companies in this aspect include centralizing paperwork-related issues through the use of software such as workflow software, sharing or shifting some tasks to employees of other departments, and developing a skills matrix for auditors, and many more.
Inventory Function
The end output of installing a variety of best practices in the inventory function encompasses efficiencies improvement in handling inventory transactions, improvement in accuracy of inventory existing records, and most of all, a reduction in inventory investment. Despite our team specializing in assisting the company in introducing best practices in this function, it may seem the parties that benefited from the new improved practices are more closely associated with the production, warehousing, and purchasing departments. However, there are tremendous values in the accounting department as well. The accounting department benefits significantly from more accurate inventory financials and fewer adjustments are needed. Furthermore, less investment in inventory indirectly means more minor errors in counting and tracking inventory, and fewer valuation works are required to assess value impairment on inventory.
It is important to take note for most parts of the best practices as recommended by our team require close cooperation and active participation among the controller of the accounting department, the managers, and/or departmental heads of purchasing, warehousing, and even the engineering department. Without the crucial element of working closely together, the relevant best practice activities will not be accomplished.
Payroll Function
It is without a doubt payroll function is an area with the heaviest or if not, the second-heaviest workloads for the accounting department in most companies. The workloads are mostly comprised of low value-added clerical tasks ranging from collecting time cards (if applicable), calculating the amounts of salary, answering supervisors on questionable attendance factoring relevant deductions into the payroll calculation, and preparing the checks or bank transfers, and many more. In making the situation worsen, since relevant payroll activities occur shortly before or at the end of each pay period, most of these workloads as mentioned were squeezed into a very tight timeframe to complete and there is little for the payroll team could do until the end of the next pay period arrives. It’s a vicious cycle in which the payroll team and possibly the entire accounting department since being forced to either incur a significant amount of overtime by the payroll team during these periods or the controller redistributes the accounting department staff to assist in the effort. The latter option will lead to insufficient time for accounting department staff to complete other essential tasks. Our team specializes in introducing several best practice activities to avoid or minimize periodic strain problems via closely examining each step in the payroll process followed by streamlining payroll activities to reduce the overall workload.
Furthermore, payroll activities contain a high error rate. Our experiences suggest it is extremely common for payroll staff to miss a vacation accrual, social welfare, tax deduction, pay rise or a deduction, and many more. When this happens, not only the credibility of the whole accounting department is impaired to a certain extent, but also the affected employee may make a bad scene by demanding an immediate answer from payroll personnel on the spot. This may devastate the morale of the payroll personnel. In the worst scenario case, other employees who are not affected may also start questioning whether their paychecks are computed accurately and may demand an investigation. The payroll team has to recheck their calculations and report their findings. As a whole, payroll errors will largely discount the efficiency and possibly the credibility of the payroll function. Our team recognizes the severity of these issues and would assist in introducing several best practices that will reduce or eliminate many payroll errors.
Users of our services need to understand although our team may reveal many best practice techniques for reducing the workload and error rate of the payroll staff, there are no methods for entirely sidestepping the process. Nonetheless, in return for installing these best practices are substantial cost reductions, a significant reduction in data-entry errors, and the cost of payment distribution will be reduced accordingly. Per our experiences, with the successful implementation of best practices into payroll function, the estimated cost saving in payroll costs can be as high as one-third. Aside from monetary returns, the best practices in payroll function will result in the improvement in confidence and credibility on deliverables from the payroll team as well as high morale among the payroll staff, which are key elements in promoting positive corporate culture and mutual trust within an organization.
General Function
In addition to the specific categories mentioned above, there are other areas in which we also recommend the best practices installed in these areas. One of the common best practices includes general management concepts which involve the use of value stream mapping, run charts, production cell layouts, and other related concepts. In addition, our tax team could assist with several taxation-related best practices including the assignment of tax staff to businesses and the use of tax liaisons with relevant authorities. Furthermore, we also specialize in introducing best practice concepts into employee training, reporting system, and more.
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