06 Dec Effective Cost Allocation and Reporting
Like most corporates our client in the IT sector has strict governance processes around supplier payments. Payments must correspond to previously raised Purchase Orders and those Purchase Orders must only be raised to the expected value of the invoices; with very little headroom. Where there is a degree of variable spend,and particularly where lease suppliers are transitioning, this provides a headache for those in Finance trying to plan for the next quarter’s billing – simply replicating PO’s from the previous period is not sufficient.
Like most businesses in the modern age, out IT client needs to allocate costs to a granular level within the business. In most cases down to individual employee level. As such the centralised Finance team faced a challenge of accurately and speedily allocating supplier invoices, which carry both fixed and variable costs, whilst avoiding keying hundreds of lines of data from pdf invoices (they are currently unable to process backup files into their accounting system). Our solution was to create a ‘finance report’ based on the previous period’s invoice files. These were split by fuel and other costs and created an allocation percentage for each supplier, which was assigned to each cost centre in the correct portion – clearing the entire invoice cost down without the need for holding cost centres.
The processing productivity improvement through using this system has delivered substantial resource savings and ensured that cost centres are only carrying the costs that they ought to be carrying and nothing more.