I wish I had the talent of Kirby to summarize the essential in a few words. Therefore, please apologize for my lengthy input, but it might give you some ideas on how to create use as a model for your Consulting business.
What you describe is business as usual in most companies. Selling, ordering, and presenting the Financial Statements at meetings are considered intellectual decision-making processes. Technology stops when it comes to the handling all the papers necessary to compile this information in the first place. Account receivables and payables have to assume the manual “clean-up work” and it’s their job to figure it out.
EMERGENCY ACTION
To break through the present bottleneck, ask the Controller to set up a task force. A well-prepared conference call between the decision-makers and the people that handle the documents in their departments. Distribute spreadsheets with a list of pending issues (list of unapproved invoices, missing purchase orders, etc) Agree during the conference who is handling which list and give these individuals a few days to solve their problems. Keep the conference under tight control. Not the time to argue. From there on, handle the people that have been given a list of open items individually. Otherwise, you fall into the trap of “let’s decide when the next conference call will be”
ONGOING SOLUTION
The only way to help your customer, and to establish yourself in the process as an expert in the field of “integrated office processes” is the following. Your enemies are not the papers that float around. The fundamental problem is that purchasing, invoicing, cost centers, in your and the vendor's companies are operating under the control of managers/supervisors that act like king of little fiefdoms, defending their territories within the departmental silos. They all have different interests, pushing a purchase order through - if a stressful situation offers an opportunity - without having an approval, and delaying the handling of paperwork, in general, is part of their game to avoid transparency in the system. Chaos creates an umbrella under which they can hide their inefficiency and laziness.
First thing first. You need somebody who sees your problem, accepts it and has the necessary decision power to add the purchasing procedures into the company’s policy and procedure manual. This is not the time to argue with individuals. Establish the rules and within 1 month, you will see the end of the tunnel.
- Allowing people to order anything without a purchase order that is approved by a person who has the legal competency to enter such a commitment is as negligent as keeping the cash register unlocked.
- Ordering without a properly approved document is a serious violation of the company’s policy.
- Remind the Controller, that the auditors would have a problem with that.
- Purchase orders must be numbered in sequential orders.
- The book with the original stays with the person that is responsible for the administration of the purchase order book/register.
- The original which includes all information needed for the vendor, as well as your company’s accounting, is sent to the vendor as the legal document for the purchase. (buying/selling companies often have different product codes for each item. By having both product codes on the purchase order avoids research needed to match incoming invoices with the accounting code is eliminated.
- One copy goes to the warehouse. (of course, all these transactions can be handled electronically. The main thing is that “all information needed to drive future processes is included in this one-time data input)
- When the goods arrive, the warehouse checks the delivery document with the goods delivered and signs off.
- They pass the approved documents (delivery document attached to the purchase order) back to the purchasing department.
- Incoming invoices from vendors go to the person that handles the purchasing process. It is their duty to verify that the quantities, product numbers, and the purchased amount equal the amount on the invoice, obtain the approval for the payment of the invoices, and pass all three documents to the accounts payable department for payment.
- That’s why it is of utmost importance that the mail department is putting a date stamp on every incoming document. This helps to avoid that person sitting on vendor invoices for a long time delay all subsequent processes. (all part of avoiding transparency)
- Once the entire batch of papers is ready to be processed in the payable department, the process should be straight forward.
The interface with the vendor is another story.
- In order to be effective as an accountant, you should always look for personal contact with the accountant of the companies you are dealing with. This applies to Accounts Receivable as well as Payable. They are talking the same language and have the same problem. Both are looking for optimal handling solutions that reduce their workload.
- I prepared at the end of the month a spreadsheet with a list of all invoices that were received during the month. I always used a standard template for this. The list is broken down into the following sections:
- - - Invoices received and approved
- - Total of invoices that will be paid this month
- – List of invoices in dispute
- – Total of the balance of our account with you.
- There must be an agreement that both Controller’s or somebody with the necessary experience and decision power is in charge to solve the problems that have led to the disputed invoices and there must be an agreement that if disputes cannot be settled on a departmental level, the issue will be submitted to the CFO/CEO’s to make a decision.
The biggest savings of this is
- Avoids unnecessary timely reconciliations of the account balances now and in the future.
- Reduces the reconciliation process of accounts payable tremendously since disputed invoices are dealt with separately within 10 days and included in the next monthly payment. By using a spreadsheet that identifies those disputes establishes a paper trail that avoids reconciliation problems.
- If you use this approach in intercompany transactions, both companies agree on the monthly charge, the receivable, and the payable balances are netted and one check will settle both accounts.
- If you have multiple subsidiaries involved, this is the base on which you can build a “cash pool”. The mother company is acting as the banker. Each company sends a list of its receivable balance to the mother’s company for collection on their behalf from the payable subsidiary. The cash pool nets the balances each company owns or has to pay against each other. I five companies are part of the pool; five checks will settle the balances between the entire group and it reduces the cash floating between banks.
Do not take everything I listed “literally”. Just take it as a general guideline and integrate those parts that apply to your particular situation
Good luck
I will present these to the Controller and Assistant Controller to determine the feasibility of implementing with our current system and staffing resources. The company does not have a large, dedicated A/P department and will therefore be grateful for the expertise.