12 Tips to Make Financial Operations More Efficient

Speeding the delivery of high-quality information.

  • CORPORATE ACCOUNTING departments must overcome the reluctance on the part of others within their companies to make changes to established procedures. Such changes—often accompanying the installation of new accounting software—can help cut labor costs, speed monthly closings and help companies become more profitable.
  • IMPROVEMENTS CAN BE MADE IN several areas, including accounts receivable, where companies can consider making use of lockbox processing to get deposits into their bank accounts faster. Companies also can use software programs to make credit checks before goods are shipped, minimizing losses from bad debt.
  • IN THE AREA OF ACCOUNTS PAYABLE , companies can streamline travel and expense report processing, change the vouchering of purchase order items, implement the use of a corporate purchase card for small purchases and consider outsourcing freight payment processing.
  • GENERAL LEDGER IMPROVEMENTS can be made by capturing tax information when source documents are processed, adopting a standard chart of accounts for the entire company and reducing the monthly closing time by fully using software options.
  • CHANGES ALSO CAN BE MADE IN PROJECT accounting, treasury management and fixed assets to set up separate coding for specific projects, accelerate bank reconciliations and integrate fixed assets with the general ledger.

Corporate accounting departments often are limited by tradition. Established procedures perpetuate a pervasive mind-set of "This is the way its always been done." But the introduction of a new accounting software package or the review of one already installed gives an accounting staff the opportunity to overhaul day-to-day financial operations for a companys benefit. At such junctures, reengineering basics such as financial processing, the general ledger, project accounting and treasury management may shave labor costs, speed monthly closings, improve cash management and help a company become more profitable.

As Jerry F. White, director of the Caruth Institute of Owner-Managed Business at Southern Methodist Universitys Cox School of Business in Dallas, points out, "Efficient financial reporting is essential to making management decisions on a timely basis, before a problem compounds. The faster you have high-quality information, the quicker management will be able to take corrective action."

According to Lisa Robinson Waugaman, SAP technical project director at Quaker State Corp. in Las Colinas, Texas, and formerly a senior manager of process transformation at Ernst & Young in Dallas, the best reengineering practices "consolidate routine processing, streamline time-consuming tasks of little advantage or eliminate data duplication by more fully using software capabilities." The 12 ideas presented in this article can work for Fortune 500 companies as well as small to midsize businesses using standard software packages. While these tips can be applied to ongoing financial programs, when a company introduces new software, Waugaman advises its better to revise essential financial procedures before going online.


TIP 1 Make use of lockbox processing. CPAs who work for companies with a high volume of customer payments should consider lockbox processing instead of manually recording customer payments in accounts receivable. Under this arrangement, customers mail payments to a post office box, usually at a local bank. This gives a company obvious tangible benefits. The more quickly a bank deposits payments in a companys account, the sooner the company earns interest. The bank can transmit a computer file of remittance information electronically to be applied automatically to the companys computerized receivables. CPAs can define software options to match incoming payments and unpaid orders by criteria such as dollar amount, invoice number or date—or any combination. If necessary, Waugaman says a company should expand the criteria it uses to match incoming data with outstanding receivables to totally eliminate manual intervention except for unidentified customers or amounts.

TIP 2 Improve credit management. Many companies take orders and ship goods without checking customer credit because sales people get paid for making sales, not for collecting bills. Yet delays in credit checks can cause a company to lose money by increasing its bad debts. In such cases, its advisable for a company to switch to a software package that allows credit checks to be made during order entry. If a companys current software already permits this, CPAs should encourage greater compliance with this procedure. According to Waugaman, a good software program still allows the sales force to maintain its order volume but puts a hold on orders from customers with poor credit. The credit manager can then decide whether to release or cancel orders from these customers.


TIP 3 Streamline processing of travel and expense reports. CPAs need to scour the repetitive expenses processed by their companies accounts payable departments for better time management measures. A good place to start is with employee travel and expense reports (T&Es). They absorb a fair amount of staff overhead expense because of the time required for approval and the details involved in setting up payment entries.

To streamline T&E processing, employees should be asked to submit reports electronically, with precoded charges. "Precoding removes the time-consuming burden of coding," says Waugaman, who points out another electronic advantage. "Addition errors are likely to occur in manual computations, whereas electronic spreadsheets validate the totals."

Waugaman suggests another time-saving measure. Companies can speed T&E report processing by eliminating manual approval by managers in favor of direct electronic submission for payment. This avoids the trap of an expense report languishing in a managers inbox and an unwarranted delay in the reimbursement process. Employee accountability can be monitored through computer-generated, monthly departmental reports for audit or manager review for exceptions to internal policies. Or the software can be programmed to generate reports on employees who exceed T&E limits.

TIP 4 Change the vouchering of purchase order items. When companies buy inventory, raw materials or even supplies and services, insufficient purchase order information can waste valuable time of accounts payable staff who must review invoices against purchase orders for verification. Companies can eliminate this problem by asking the employee or department making the purchase to provide key financial information such as charge code, payment terms (rapidity of payment), payment method (wire or check) and the vendors remittance address. Waugaman suggests companies also ask the purchasing employee or department for the tax code that shows how the product will be used because it may have an impact on state and local taxes. For example, labor to maintain or repair a piece of machinery may require special tax handling. These procedures prevent time lost in verifying information or in having to return invoices to the originating department.

Discrepancies between amounts ordered and a shipments actual invoice also can disrupt accounts payable processing. According to Waugaman, "without knowing whether the purchasers will accept shortages or surpluses, accounts payable personnel have to set these transactions aside and await further directions." To avoid this frustration, companies can set up a tolerance in the software program for deviations either by vendor or by product. Waugaman says it could be zero tolerance, necessitating a perfect match, or 10% tolerance of under or over the amount of the shipment.

In lieu of this three-way match ( purchase order5goods received5invoice received), a company also has the option of a two-way match (purchase order5goods received). With select major vendors, accounts payable staff can do away with invoices altogether by instituting payment terms based on the goods received. "It requires a strong vendor relationship," cautions Waugaman, "and a foolproof method for accurately capturing the amount of goods shipped." Such arrangements work well with vendors with whom a company has a high volume of transactions.

TIP 5 Use a corporate purchase card for small purchases and employee travel. Rather than having accounts payable deal with voluminous items under $100, a company should distribute a purchase card to an employee in each department. In that way, the accounting staff can consolidate multiple bills for small-ticket items into one check and avoid numerous checks requiring envelope stuffing, postage and maintaining multiple vendors in the software system.

Although many companies micromanage by allocating every item on a corporate card bill to a specific charge code, the cost of this activity should be weighed against the value the company receives. Waugaman has seen instances when every item on a company Visa bill is charged to a different code because management worries about capturing every cost to the penny. But she says its not worth the time and labor for someone to check the validity of these items, assign charge codes to them and perform hundreds of entries. Typically, one charge code per card simplifies the accounting.

Companies also can cut the volume of bills received by accounts payable by issuing company cards to individual employees who travel regularly on company business. If companies do not follow this approach, accounts payable may have to dedicate one or two people to reconciling such things as airline tickets charged to the company with employees expense accounts. Using company charge cards in employees names abolishes these jobs by shifting the reconciliation and payment burden to employees, who have the incentive to submit expense reports quickly to make their credit card payment deadlines. Waugaman stresses that special issues, such as discounted airfares requiring early purchase months before T&E submissions, should be worked out so employees are not penalized.

TIP 6 Outsource processing of freight payments. Normally, an accounts payable clerk handles multiple pieces of paper to reconcile shipments and shipping documents and then manually keys in each freight bill. Companies can relieve accounts payable of this process by farming out these time-sensitive payments to a third party. For a fee, a vendor will perform the reconciliation, audit bills for accurate charges, do the remittances and provide companies with periodic information feeds for automatic entry into financial records. Outsourcing wont be cost-effective unless a companys shipping volume justifies it.


TIP 7 Capture tax information when source documents are processed. Many companies record a purchase—for internal repairs or maintenance, for example—and review it later to determine the appropriate tax treatment. "Dont handle a transaction twice," advises Waugaman. "Record it once for both management and tax reporting purposes." She says the latest software is designed to handle tax needs with greater efficiency. If a companys package lacks this feature, another piece of software can be purchased and "bolted" onto the existing system.

TIP 8 Adopt a standard chart of accounts. Every division, business unit and subsidiary of a company should use the same list of accounts (receivables, payables, cash) that makes up the companys general ledger. In addition, corporate accounting should issue standard guidelines by which to code transactions. Standardized accounts and account numbers throughout the company ensure more accurate reporting in the consolidation process.

TIP 9 Reduce the monthly closing time. Publishing monthly financial statements in the middle of the succeeding month, as is the norm for many companies, prevents top management from reacting on a timely basis to changes in the business world. Revamping the financial system with a fully integrated software package can drastically shorten this lag. Such programs automatically feed subsystems such as accounts payable into the general ledger, thereby eliminating the time and labor needed to manually total subledgers, reconcile any imbalances with the general ledger and key entries into the ledger. This not only may reduce processing time for companies that do monthly closings but also may produce tremendous cost savings.


TIP 10 Set up separate coding for project management. To capture the costs of an ongoing capital expense item such as building an addition to a company facility, CPAs should set up separate coding for the project under accounts payable so those costs are integrated into the general ledger. This eliminates handling a transaction twice, says Waugaman, first for payment purposes and then for review by the project manager, who compares the ongoing project costs with budgeted costs. If a companys current software package lacks this feature, a standalone package may be purchased that both feeds into accounts payable and is accessible for project management.


TIP 11 Accelerate bank reconciliations. Depending on the volume of checks a company writes, CPAs may wish to download information on checks cleared from the bank daily rather than monthly. Such daily routines—more manageable than the usual volume at months end—also can speed monthly closings. With the help of integrated software packages or special interface software written by a programmer, a companys financial software written by a programmer, a company's financial software can read bank records daily, automatically match cleared outstanding checks and update the accounts payable check file.


TIP 12 Integrate fixed assets with general ledger. This system typically is overlooked during a review to modernize financial operations because it has little impact on a company's day-to-day operations. Fixed assets demand corporate accounts that track information for tax purposes, the financial statements and depreciation. Typically, when capital expenditure projects are finished, they are capitalized as fixed assets that immediately begin to generate depreciation expense. Says Waugaman, "If a software package integrates those data subsystems with accounts payable and the general ledger, then fixed asset subsystem updates automatically appear in the general ledger. This ensures that finished capital projects become fixed assets in a timely manner and won't get lost." Such integration also eliminates one more task from the monthly closings list.

CPAs can use a multitude of ideas to streamline and energize the financial operations of the typical corporate accounting department. Although such modifications can improve financial reporting and realize savings in staff costs, a lot of companies say they are too busy or don't have the time to change. To overcome such resistance, Waugaman suggests, "Pick one or two items that can make the biggest difference in operations and make them priorities." Other ideas can be implemented later, when attitudes change. The alternative is to support the status quo, have disgruntled employees and publish outdated financial statements.

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