Real Numbers

by Orest J Fiume

  Cash Collection Information: If you are a small company, sometimes it is too expensive to get same-day, online cash receipt information from the bank. But managers may want same-day information on the last day of the month to close the books quickly. Tailor your agreement with the bank to courier the information to you on that day only. On the other days, let the mail deliver receipts.

  International Invoices: International customers frequently need to receive an original invoice, but regular mail service takes too long or can be unreliable in some countries. Lantech converted the invoices to a format that could not be edited at the customer site, using Adobe Acrobat software, and now all invoices are emailed for the customer to print at their discretion.

  Sales Tax Procedures: One of the most error-prone and time-consuming processes, with no value added for the customer, is calculating and charging sales tax. To minimize time and errors, ensure that sales tax information is correct when the order is initially taken. At Lantech, the sales-tax clerk looks at the orders entered each day to make sure they are correct. If she is unsure of the rate required for a specific address, she looks up the address using a handy Internet site that finds for her the exact tax jurisdiction. This eliminates changes later, ensuring that it is invoiced correctly and assists the customer in paying quickly. If a customer does not pay the sales tax, have the clerk posting cash receipts immediately contact the customer to request a sales-tax exemption certificate or request final payment. The key is to do a transaction once and be done.

  Mailing Invoices: To reduce the time spent folding, stuffing and mailing invoices, create a Pareto chart of all outgoing invoice addresses. Focus on the largest volume customers first and find ways to reduce the amount of paperwork sent. Perhaps invoices can be faxed daily or weekly, and the original thrown out to avoid duplicates at the customer site. This gets the invoice in the hands of the customer faster, which hopefully will mean faster payment. In addition, don’t print an internal file copy, but rely on the electronic database.

  Collection Calls: Reforming cash collections is tough, because the customer is the one who controls what bills are paid. But we can control how often we contact that customer. For instance, a company that needs to increase the number of collection calls made on a daily basis needs to keep the goal in front of the clerks. Use a visual cue, like two glass jars with large marbles; one jar depicts the number of calls the clerk needs to make, the other shows calls made. Each time she makes a call, she moves a marble to the other jar. The clerk can then self-monitor and see the progress being made each day.

  Sales Records: Electronically attach or clip documents to the order so everyone using the order can see all documents. These might include the commercial invoice, bill of lading, purchase order or single sales tax exemption certificates.

  Collection Information: Look at how reports are used and sort data in that order. For instance, the list of customer balances is used in alphabetical order by name, instead of by customer number. So, change your report. A quick review of how reports —online or paper copies —are used can yield some good improvements.

  Purchase, Receive and Pay

  Activities related to purchasing inventory and non-inventory items, receiving purchased goods and paying suppliers.

  Pay Suppliers Electronically: To reduce the hassle of printing and mailing checks, receiving canceled checks and dealing with lost checks, ask your suppliers for the bank information where payments can be sent. This also allows you to more precisely control when funds transfer.

  Invoice Processing: One of the most time-consuming accounting processes is paying invoices. We receive invoices, match them to the purchase order, make sure the items were received and get approval to pay the invoice from someone with authority. This process is full of improvement opportunities. One dramatic improvement is to stop collecting invoices for materials received frequently from a supplier-partner. In a lean environment, operations will begin ordering in smaller and smaller batches (often using a nearly automatic method of ordering called kanban), dramatically increasing the number of invoices received. Instead of paying for every invoiced delivery, pay the vendor for materials at the agreed upon purchase-order price when materials are received, eliminating the invoice. Purchasing will have to get involved and it is usually best to implement one supplier at a time.

  Early Pay Discounts: Look at the interest rate you are passing up when you do not take early-pay discounts and decide how much of a discount you need to receive in order to make the early payment. A common mistake is applying the early pay to the total amount of the check. Instead, only apply the discount to new items and don’t apply it to the credits you might have with the supplier.

  Bench Stock and Office Supplies: For high-volume, very low-cost items (like nuts and bolts on your product or pens and paper in the office) consider working with one supplier who will restock your parts bins on a daily basis. Then have the supplier bill you on a monthly basis only for the items stocked. This is a good example of where the risk of overpaying for the item is low, and the processing cost of procuring the item is much too high. It is unlikely that a supplier with a large percentage of your parts business will over bill the company and the cost of avoiding that risk —counted in purchase orders, approvals, matching receipts and multiple invoices for nuts and bolts —can be very high.

  Payment Checks: Eliminate special typing on checks being sent out by using a miscellaneous field in your software system that can automatically print on your check remittance.

  Invoice Processing: Typically, a receptionist or mailroom clerk sorts the mail every day and might automatically send all invoices to accounting. Accounting sorts through the invoices again, looking for what can be paid and what needs outside approval. If the clerk or receptionist can sort the invoices that need approval first and send them to the proper person, one handling process is eliminated.

  Cancelled Checks: Use tools available at the bank, such as canceled checks on CD-ROMs, to cut down on physical documents and shuffling through them. With records on CDs, accountants can search for documents electronically and keep a years’ worth of records in the same space as a week’s worth of cancelled checks.

  Research: The prime benefit of an integrated system is being able to drill down on a specific item to confirm accuracy of accounts. For example, you should be able to open an electronic version of a customer’s bill and click on certain fields to see all the background information. An order number, for instance, could reveal who placed the order and delivery date requested. Going to the part-number field should reveal if the part is available. When considering whether to issue a credit, this is all valuable information.

  Hire, Pay and Benefits

  All activities related to hiring employees, paying their salaries and personal expenses, and procuring and processing benefits.

  Payroll General Ledger Entry: Eliminate manual re-entry of payroll results to the general ledger, if you outsource payroll. Instead, import a file from your payroll service. This will help you close the books more quickly and have the information easily accessible throughout the month.

  Expense Reports: Create an online expense report. Or put a common spreadsheet in an electronic file that is accessible to all and includes the account number for ease of entering.

  Pay Changes: Calculate the pay increase using a spreadsheet and then upload the spreadsheet file to your payroll processing service to eliminate keying individual increase amounts manually.

  Compensation Administration: Lantech uses a matrix of pay increases based on range penetration and performance. Pay changes are calculated based on a person’s performance rating and on where their current pay is compared to the pay range. The application of those increases are now performed in accounting instead of being figured —and possibly fumbled — by every team leader. This results in less time spent overall and fewer errors in calculation.

  Benefits Costs: Instead of breaking down your benefit bills and payroll taxes (medical insurance pre
miums, dental bills, self insurance bills, Social Security taxes, local taxes, etc.) by cost center or department, create one cost center for all benefits costs. Considering the fact that individual cost centers cannot directly effect the cost of benefits, try not to allocate benefits to cost centers. If you feel that you must allocate, do so as a percentage of pay. This eliminates hours spent splitting up cost precisely, when only accurate information is needed. The benefits cost center can be used to evaluate and manage the total benefits cost.

  Contract Management: Third-party vendors provide many benefits. Check that vendors are complying with their contracts. If the dental program has a maximum benefit, look at the reports to make sure that the insurance company is not paying more than the maximum. If your workers’ compensation plan gives a discount for a drug-free workplace policy, make sure they know if you have one. These sound so simple, but someone has to look at it to ensure the company receives the right benefit costs, and sometimes, pay dirt is waiting in contract compliance.

  Taxes, Audits and Other Regulatory Requirements

  Tax Filing: Doing the job in a timely manner reduces interest and penalty payments. Review the returns to make sure excess payments are returned rather than being applied to the next year. Your company, not the government, should be earning interest on that overpayment money.

  Submitting Tax Returns: Most companies owe information to a lot of different tax authorities and the careful accountant sends it via certified mail to keep a clear record. But sending all those reports via certified mail is time-consuming and boring work. Initially, Lantech created a small file with all the addresses for every state, which made for easier printing. Now, it’s possible to send most returns and fees through each state’s electronic cash receipts process. It takes time to set up, but once done, it is secure and easy to track.

  Taxes Liability: Create a recurring spreadsheet (or report within your integrated systems) to calculate estimates of the items that are treated differently for tax purposes than for GAAP. This can give you a quick report for estimating tax liability.

  Audit Reports: Ensure that reports created for the auditors are in the same format that you use for account reconciliation throughout the year, and that auditors have agreed to work with this format. This avoids duplicate reports and it makes preparing for the audit very simple.

  Reporting: For the company with a non-integrated system, spreadsheet software can be your best friend. Transfer data out of one system electronically into a spreadsheet, manipulate it there, and then transfer out to the non-integrated module. For instance, if you want your financials divided by product line and your sales system does not segregate product line sales, download all sales entries and use the spreadsheet software to resort it by product line. Subtotal your columns, then put the results of the reports into the general ledger.

  To pull an accounting department together to work as a team, it is also important to take a good hard look at how we arrange ourselves. Most offices look like cube farms —with all the work areas set in faceless rows, concealing team members and their work from one another. Even the team leader generally cannot see if one person is frantic and strangled with work while another is surfing the Internet to kill time. Worse yet, cubicles kill the open communication that allows a two-second question —the questions that can be answered without really interrupting, but that help fill in the details of our work.

  Instead, we recommend that offices be set up in such a way that team members can easily see and speak to one another. Some have had great success with lower cubicle walls. Others have turned the cube inside out, creating larger common areas for discrete teams (see Figure 4.1).

  With team members speaking to each other and seeing one another’s work flow, they will also see opportunities to rebalance work loads and cross-train without too much prompting. Partly, this is a morale issue. Cubicles have become so expected that we don’t even hear the complaints anymore. Work and tedium go hand in glove, right? Not necessarily. For companies particularly interested in retaining employees, having a little fun and socializing at work can become a critical issue. Accountants especially need to be able to look up and chat a little in order to relieve themselves of the streams of numbers that occupy their days. A little fun at work means a happier, more stable team, who might socialize a little at their desks —where they can still answer the phone and work —and won’t be off to the break room at every opportunity.

  If a department can rid itself of cubicles altogether, it is then free to relocate desks into more logical patterns, related to information flow rather than simple space requirements. Most companies have all the compliance people sitting together, and all the credit-check clerks in a clump. At Lantech, Jean rearranged desks to mimic the U-shaped cell favored by lean manufacturing. Looking at how work transferred from one person to another, she moved the invoice clerk next to the sales-tax clerk, both of them facing the person doing collections and added to the area a visual board showing sales and cash information (see Figure 4.2) Now, when the person doing collections has questions about an invoice, or the sales tax clerk has a question about a customer in California who owed a large amount of back sales tax, he only needs to raise his voice to normal speaking tones to get a question answered. A clerk specializing in medical insurance might sit next to a payroll clerk and those who deal with different aspects of computer leasing might have their own area.

  This configuration also encourages cross training, which should not stop at the edge of the factory floor.

  “We think cross-training is vitally important,” says CFO Greg Flint of the country’s premiere granite processing company, Minnesota’s Cold Spring Granite. “We’re focusing on one-piece flow, no matter the activity. So, our belief is that all clerks should be able to perform all jobs.

  “For instance, when the mail comes to accounting in most organizations, some pieces will go to the tax specialist or collections or accounts receivable. We want any clerk to be able to pick up the mail and deal with each piece —to pick it up and put it down once and be done with it. It’s the same idea as in our plants; we want people to multi-task.”

  At Cold Spring Granite, a cross-training matrix is posted in the department so that anyone can tell, at a glance, how Flint is managing the process. Across the top of the matrix is the list of tasks that need to be performed in his department. Down the side are the employees. An “O” in one of the central squares means the person is in training. A partial fill-in means the clerk has been trained, but cannot yet perform to cycle-time. If the “O” is filled in by two-thirds, the clerk can do it to cycle time and a total fill-in means the clerk can train others on the task. The only other marks are a few crossed-out squares, which show the spots where cross-training will not occur because, as Flint points out, the need for internal controls means you must sometimes be selective. For instance, an accounts payable clerk should not also be in charge of creating vendor contracts.

  The real benefit of cross training is flexibility. When the entire department can respond to fluctuations in demand during the month, you have eliminated the waste that occurs when some people are working too fast and others are killing time.

  With waste eliminated from processes, here are some new, more value-added activities you can include:

  Look at warehouse rent charges and then visit the site to ensure all the square footage being paid for is used. At Lantech, the bill was reduced by 95 percent when it was analyzed how much space was going unused.

  Consider in-sourcing activities, such as payroll or lead generation.

  Assign your accountants to different product teams to help the teams understand the economic impact of the decisions they make.

  In order to be more consultative we, as an entire team, must also understand more about the purpose of the business and how it is performing. One technique to accomplish this is a monthly team meeting to discuss the financial and performance metrics of the business and of the accounting team. It is a blend of business p
erformance and accounting performance. Every person on the team presents information about their area, using trend reports for performance over time, comparison charts to show performance against a target or budget, a Pareto chart to show results in order of frequency, or some other comparative information. Discuss the results of the month and any key drivers of that result. Some examples of a recent month’s agenda topics include:

  1. Order entry, shipments and profit results

  2. Cash balance

  3. Number of invoices processed

  4. Cash discounts taken

  5. Number of days to close

  6. List of post-close entries

  7. Percentage of orders reviewed with incorrect sales tax information

  8. Warranty performance

  9. Cash receipts

  10. DSO (Days Sales Outstanding) by sales channel

  11. Inventory days supply on hand

  12. Improvements made in past month

  13. Employee receivables aging

  14. Suppliers added in last month

  15. Backlog by product line