Cost Efficiency vs Cost Savings

There are two big cost related drivers when considering outsourcing – improving cost efficiency and making cost savings. They might sound similar, but they’re two different things.

Cost efficiency refers to utilising resources to optimal levels and achieving more with existing resources (or slightly less). It’s about making each dollar that little bit harder.

Cost savings is about reducing your input costs and achieving the same (or slightly better) result, ultimately reflecting positively on your bottom line.

In Focus: Cost Efficiency

Our client had an accounts team consisting of 3 staff. The team as a whole was relied upon to deliver sound management of the finance function. Tasks included: Accounts payable, accounts receivable, general reconciliations and monthly reporting.

Upon reviewing the processes, it became very clear that simple tasks were taking too long, and a lack of clear direction for each staff member meant cost efficiency was low. Basically it looked like 3 staff members were achieving the results that could regularly be expected of 1.5 – 2 staff members.

Supplier Bills were being printed / collected and dropped in a tray for entry into the accounting package. Once entered, the bills would be filed away.

These bills would frequently pile up due to staff leave or a spike in business activity. This often led to monthly reporting being delayed, and the staff member in charge of monthly reports would frequently spend the last few days of the month entering bills.

What We Did

We reduced double handling of supplier bills and refined the post-entry filing process to completely streamline the Payables function.

At the same time, we outsourced bill entry and the weekly pay run.

We gained remote access to an Outlook folder labelled bills. Staff would forward any soft copy bills received to this folder. Any suppliers sending hard copy bills were contacted and asked to go paperless. There were a few who could not make the change. The staff member in control of mail would scan any hard copy bills and forward them to the bills Outlook folder.

Every day, we would ensure the ‘bills’ folder was cleared, and everything entered into the accounting package. Once entered, the bills were filed online, electronically. For this particular client, the cloud storage we used was Dropbox.

Every Friday, we ran a payment run by preparing a payable file and uploading it to the client’s transactional account. The Finance Manager received notification that the weekly pay run was uploaded in the bank, they reviewed and authorised payment, AP was done!

Result

Our client reduced head count by one, using us to run the Accounts Payable function remotely. But the key here was the efficiency they gained. Monthly reporting was always completed by the deadline and the staff member in charge of reporting was able to unlock nearly 30 hours per month earlier wasted on inefficiencies in the payables function. This time was used to assist in budgeting and management reporting / planning, thus assisting the Finance Manager in their role.