Business Advisory directors Jack Deal and Ryan Pearcy continue their look at the complexities of estate management. In their latest bulletin they examine some of the issues business owners may face when contemplating how to effectively manage these issues with people, processes and systems.
The payables side of an estate can be a significant burden on the finance team but with some professional advice, modern technology can be used to help streamline this area of the business.
Expense management can be a horribly manual and time-consuming task. Traditionally it involves collecting paper invoices and expenses from multiple areas of the business and getting approval from various individuals. The information on these documents is then manually retyped into a finance system and then some of these are selected for payment which often means using a separate manual process. If there are queries on items these tend to be put to one side and not processed until resolved. The time all this takes results in finance systems never being up-to-date and a heavy reliance on the finance team to process payables with accuracy and consistency. The diversity of the modern farm estate can exacerbate this, and the examples below will ring true with anyone who has experienced this.
Invoices and expenses can be paper-based, email (which tends to now be the most common) or via a portal that you must access and download yourself. These will generally be received by multiple different people in the business, based on their role and department. This process is designed so that the individuals concerned know what the expenses are for, have the chance to check them, and then manually mark them as approved. After that, if you have a well organised system the approved invoices and expenses may go into a centralised email address or physical tray, but for many businesses the finance team are responsible for collecting this information. Once collected they then need to re-type this data into the finance system. This is manually intensive and can be exacerbated by invoices with large numbers of lines that need separating for reporting purposes. The repetitive and (let’s be honest) manual nature of this work can lead to errors and so a robust review process is also required to check the data inputted.
A unique issue for agricultural teams is how to deal effectively with buying groups. Although items are purchased from individual suppliers and invoices sometimes received for these, those costs are collated into a single buying group statement that enables payment to be made at preferable rates. Reconciliation of these statements can be challenging, as they may cover all areas of the business and often arrive much later than the associated invoices. Buying groups have acknowledged these challenges and many have invested in offering electronic reports which integrate with finance systems.
Orders and Approvals
Purchase Orders are generally used to authorise a purchase before it is made and to hold a supplier to account. They are used in various guises, usually inconsistently and with an informal matching-to-invoice process. The result is often a frustrated finance team that has to deal with the paperwork at the end with a “this will do” mentality. When operated effectively, Purchase Orders ensure best prices are agreed upfront and suppliers are held to these before payment is made. When used manually, the admin burden of Purchase Orders can often outweigh the benefits.
As mentioned above, invoices and expenses need to be approved by various people across multiple departments to validate the accuracy of the document. In a manual process this tends to occur before data is entered into a system, which delays the information being entered and can hinder the accuracy and timely payment of the finances. It also relies on people being available to approve with a need to physically sign off the paperwork, which obstructs flexible working practices.
Payment processes can be simple by idea but complex by operation. The focus here is in relation to payment in arrears, normally based on the due dates of invoices. This is generally operated in two different ways. Either the invoices are collated manually into folders for timing of payment and then only processed into the finance system once payment is made. This can put the finance system out of sync by weeks or months. Alternatively, payments are run based on due dates of invoices in the finance system. In both processes, information is manually re-keyed into the bank’s batch payment system . A good system will have suppliers pre-stored with bank details restricted and authorisation only possible by designated individuals. A bad system will put full reliance on the finance team, with most somewhere between the two. Either way, the re-keying of information creates additional risks of fraud or error and adds time to the process.
Is there a solution?
Modern cloud-based expense management systems create the greatest efficiency savings whilst also improving data accuracy, speed of input and reducing risk of fraud. The best setups enable costs to appear in the system in less than 5 minutes from when they were dispatched by the supplier, including an approval process. The costs of the systems are far outweighed by the time savings they generate and can also enable a significant reduction in paper stored.
How do they work?
The most effective expense management systems are either one software or a combination of different software that work effectively together. They are a combination of data capture tools, custom built approval flows, automation engines and integrations that enable documents to be located, processed, allocated, approved and pushed for payment from anywhere. Individuals are given appropriate access to the software depending on their roles, and the software creates reminders via notifications where helpful.
Starting with Purchase Orders, these can be created centrally via an app (potentially on a phone) using item lists pulled from the finance software. These are then sent via pre-built approval flows digitally and instantly to the relevant internal individuals, which once approved can be sent digitally to the supplier. When an invoice is created this can be captured via a designated email address, photographed via a phone, or scanned or extracted from an invoice portal. At this point the invoice is scanned with all relevant information extracted automatically and pushed through for approval via the designated approval process. This can be a combination of automatic and manual approvals based on the nature and value of the expense, as well as the department. They can be digitally matched to Purchase Orders to verify their accuracy, all the while being visible inside the same system and automatically pushed into the finance system ready for payment. Modern payment systems can extract invoice and bank information directly from the finance system (segregated by user level), enable easy selection for payment and approval and sync with traditional banks to enable payment directly, without the need to re-type anything.
Selecting a digital expense management system that works for the size and intricacies of the estate can quickly deliver a significant reduction in the administrative burden on your team. With any system conversion comes the challenge of change management and the impact on the team. Processes will need to be adapted, training tailored, and support secured. Getting this right can transform how you and your team work for the better. Get in touch with one of our digital accounting team for a chat about taking the first steps towards cloud-based financial management.