Five causes of a cumbersome corporate reporting process

27 September 2016 Consultancy.uk

Corporate reporting is a topic that virtually any organisation deals with as chief executives (both CEO and CFO) expect to receive regular updates on corporate performance. Delivering on this necessity can be a challenging exercise – but it doesn’t have to be, says Casper van Leeuwen, partner at Satriun Group, a consultancy specialised in the matter. Van Leeuwen sets out five key causes that, according to him, can stand at the heart of cumbersome corporate reporting. 

1. Ignoring the power of push down

Some corporate centres have the tendency to assume over centralised responsibilities. Whether it is related to bridging local accounting principles to group accounting principles, purchase price accounting, or cash flow statements, the idea that operating companies are unable to assume more responsibilities is counterproductive. Besides cluttering the process, this approach generally results in multiple versions of the truth – one truth as the operating company sees it, and another truth as the corporate centre sees is. Such a situation can be identified if there are frequent debates about which of the two are the ‘real’ figures.

2. The lost art of double-side bookkeeping

Some people consider controlling, FP&A and reporting a superior activity compared to accounting, but at the same time they ignore the interdependencies between the processes. Coherent and effective financial controlling, planning & analysis and reporting can only be achieved by relying on a solid journal entry basis. Corporate reporting sometimes fails to reflect that journal entry logic. The information then easily becomes incoherent. The main way to recognises this case is when the indirect cash flow statement requires too much manual adjustments to be completed.

 Corporate reporting

3. Misaligned information architecture

Each corporation’s information architecture consists of a suite of software solutions. ERP, CRM, BI and CPM (Corporate Performance Management) are widely adopted, but are often misaligned, limiting their potential. Being overly dependent on Excel for corporate reporting is a typical sign that CPM should be better positioned. Another example is when ERP is used for data collection or BI is used for financial consolidation. Managers can identify this if there is a general feeling that there is too much time and effort involved in submitting the required information.

4. The corporate reporting black hole

Corporate reporting can be a one way street where information is pushed up the chain without a proper feedback loop. Such a situation is likely to exist in corporations that ignore the power of push down, but a missing feedback loop can be a broader problem. Reporting systems that do not provide the user immediate and automated feedback whether the information provided reconciles and makes sense also miss the feedback loop. A well-designed feedback mechanism is one of the pillars of accurate and reliable reporting. This situation can be detected when it is possible to submit inaccurate or incomplete information without any red flags being raised.

5. High expectations but little guidance

Delivering good corporate reporting requires a corresponding skillset. Understanding complexities around cash flow statements, organic growth, and business combinations is no small feat. Corporate centres generally expect the operating companies to deliver high quality information, but this is only feasible when there is a clear knowledge management strategy that incorporates user-oriented documentation and training. This case can be identified quite easily by a lack of self-learning materials or by outdated documentation.

Corporate reporting becomes cumbersome when the organisational, technological and social aspects are not sufficiently addressed. The corporate centre should be aware of its role as competence centre and process coordinator with regards to corporate reporting. With a well-designed and value added Corporate Performance Management platform and reporting process in place, the corporate centre can concentrate on teaching and coaching the operating companies. This requires a different skill set compared to the classical accounting-centric skills sought after in corporate centres. It is the combination of hard skills and soft skills that really makes the difference!

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Late payment culture cripples productivity of SMEs

29 March 2019 Consultancy.uk

UK SMEs are seeing their efforts to grow stifled by late payments, causing thousands to enter insolvency proceedings each year. According to experts from Duff & Phelps, this also has a major impact on the UK’s economy, meaning late payment culture must be tackled if the country is to dodge yet more economic stagnation in the shadow of Brexit.

Small and mid-sized enterprises in the UK face a myriad of pressures at present. Brexit anxieties are keenly felt by SMEs, with more than nine in 10 suggesting recently that economic conditions have worsened in the last 12 months. 66% of SME leaders also expect conditions to further worsen in the coming year.

At the same time, firms are keen to see value for money from investing in external expertise. Consulting fees which weight much more heavily on smaller firms, who spend £60 billion per year on professional services, but feel that more than £12 billion of that figure is wasted on unnecessary or bad advice.

Late payment culture cripples productivity of SMEs

Above all, however, SMEs are extremely vulnerable to late payments, and, according to a new study, the situation is only getting worse at present. According to corporate rescue consultancy Duff & Phelps, small businesses in the UK are facing a collective bill of £6.7 billion per annum due to late payments by other companies, while the average value of each late payment now stands at £6,142. This has risen from £2.6 billion in 2017, illustrating the plight of SMEs, particularly with uncertain economic times ahead.

Indeed, the spike in late payments has already caused significant productivity issues for SMEs, which in turn compromises their financial stability. With staff wasting hours chasing down late payments and businesses becoming preoccupied with short-term cash flow problems, they are less able to concentrate on creating new value for the firm, which in many cases gradually slides toward insolvency.

Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture. This is likely a big driver of the UK’s 20% boom in insolvencies over the last three years, especially as it has a knock-on effect on other SMEs within the supply chain of those struggling firms. Approximately 50,000 small businesses fail each year because of late payments, amounting to a shortfall of more than £2.5 billion for the UK economy. 

Commenting on the findings, Paul Williams, Managing Director, Duff & Phelps, said, “In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!... More can be done to avoid businesses reaching this situation in the first place. SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.”

The UK Government currently promotes its voluntary Prompt Payment Code to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs. There may be hope for an end to late payments, however, following an announcement in the Spring Statement from Chancellor Philip Hammond. The Government aims to crack down on the practice, with Hammond stating big companies should hire a Non-Executive Director to be responsible for reducing late payments to small suppliers. The statement also advises that organizations publish payment practices in their annual reports.