Manufacturing companies face a number of threats and opportunities – changing geo-political equations, disruptive power of technology, skills shortages, high profit margins and rising labour costs, to name a few. Operating in such dynamic times, CFOs, Finance Directors and other finance leaders are expected to drive FinTech initiatives, contend with complex regulations, maintain compliance and provide assistance to the CEOs and MDs for formulating strategies for business growth.
However, the sheer volume of managing day-to-day tasks like inventory accounting, bookkeeping, payables, receivables and payroll across locations often keep finance leaders tethered. The difficulty of finding and retaining skilled accounting staff compounds the problem. This prevents finance leaders from implementing new technology or use outsourcing to streamline and reduce the cost for various administrative tasks.
How manufacturing companies profit by investing in a proactive and effective accounting department
No matter how time-strapped you are, in case your accounting department is not functioning as well as you feel it should, it is essential to explore new ways of improving its effectiveness. While delivering finance & accounts outsourcing to manufacturing companies, we have witnessed first-hand the type of impact streamlined accounting can have on a company’s bottom-line. Here are some key ways the finance & accounting department can add value your business:
1) Reduction in accounting overheads: Manufacturing companies that grow rapidly often outrun their existing software and face skills shortage. In the face of complex and voluminous accounting needs, these issues lead performance issues and higher cost of processing. By resolving these issues and building a highly efficient department, manufacturing companies can achieve up to 50% reduction in the cost of accounting.
2) Improved revenue recognition: On the face of it, revenue recognition seems like a simple activity – all the accountant needs to do is identify contracts, review the performance obligations, determine price of transaction, allocate the process to performance obligations and recognise revenue as the business satisfies performance obligations.
However, this function can be highly disjointed, especially in case of larger entities. Add to this the emergence of new revenue recognition standards and you may have a problem on your hands. With automation and process standardisation, manufacturing firms can improve their revenue recognition capability, which can further translate into strategic cost reduction, insightful data and tax savings.
3) Savings via supplier rebates: The sheer number of suppliers and items involved in the process make accounts payable for manufacturing companies a tough task. It is not uncommon, even for large manufacturing firms, to follow a paper-based payments and billing process. Not surprisingly, this often results into non-payments, late payments and duplicate payments. By implementing a paperless solution, your accounting department can make timely payments to suppliers and save hundreds of thousands of pounds in the form of supplier rebates.
4) Improved business relationships: Who doesn’t want to be paid on time? Whether it’s you own employees or suppliers or other vendors, paying on time smoothens the relationship. The accounting departments ability to share details on the status of payments in real-time also comes into play. An efficient accounting department helps to eliminate the relationship issues that arise out of delayed or incorrect payments.
5) Smarter inventory management: When you combine strong supplier relationships with a specialist accounting team and improved reporting, you can take your inventory management capabilities to the next level. Backed by strong accounting teams, manufacturing firms can reduce the overall investment in inventory and substantially improve the cash flow by reducing the inventory on hand through techniques like drop shipping and persuading suppliers to own on-site inventory.
Next steps
The future is at the doorstep and it is imperative manufacturing companies to optimise their accounting processes. Adopting technology and automating manual processes are a key requirement for any finance leader and at the top of the list of priorities. However, this requires a lot of time and focused effort – luxuries most finance leaders do not possess.
QX has played a vital role in helping manufacturing companies adopt automation, streamline processes and build a highly efficient finance & accounting department. We would love to show how we can do the same for you. Please get in touch with us and find out how exactly we can help you.
