Directors view

Gianni

The purpose of this post is really to canvass opinion on how other members deal with directors.

Directors are usually interested in one thing, profits. They usually make all decisions from a commercial perspective and their regard for any technical or accounting issues is usually the last thing on their mind. That is unless they have a financial background themselves in which some consideration will be given, others would argue if they do have some knowledge they'll try and bend the rules even more!

Has anyone had problems dealing with their directors?

As an accounts technician I feel I have a duty to produce financial information that is useful to a wide range of users, that being internal stakeholders (directors, co-workers) and external stakeholders (banks, factoring companies, investment groups etc.). This has been fine in the company I work for, they have 'pre sold', in that, sales have been brought forward into a monthly period (little profit) but at year end this is all sorted so I don't see *too* much harm in this and other than that nothing really.

However, now that the economy is biting and recession is almost upon us the company is feeling the pinch. I'm finding a lot more is beginning to happen, ranging from pre sales (little excessive now) to keeping back of purchase invoices (legals), sales periods being kept open beyond month end to stock being booked in that hasn't arrived and sold (both to falsify profit & advance cash from factor) etc.

I've not been in work much the past week or so and won't be in for another week (cima study leave) so will be looking to resolve this when I return (I can't imagine what will have been done by then!).

My question is, how would you deal with this?

sarahwilson

That is almost a carbon copy of what the last firm I worked for did and they went bust within 2 years. Pre invoicing to get advances from the factoring company is a slippery slope to be getting on and I'm not even sure its legal.

If you feel they would be open to it I would point out that the way out of this is not to get into a spiral of falsifying accounts. Think up some cost savings that would make the actual sales figures more palatable, there is no point them working with pie in the sky sales figures.

Good luck, I left the last place they could not or would not see what was going to happen. I put together spreadsheets showing where we could cut costs so we could maybe ride it out, but they wouldn't have any of it. It might not have made any difference in the long run but I do know that robbing Peter to pay Paul definitely isn't.

Gianni

Hi Sarah,

Thanks for your feedback. It is definitely not legal to pre invoice your invoices, that's from an accounting perspective (IAS 18) and a factoring perspective (see terms of service). Usually what happens is the bank (or the factoring service provider) will come in every 3 months to do an audit, checking for pre invoices amongst other things, in our case the bank hasn't been in for at least a year. No wonder the banks are in chaos!

The company is incredibly lean, I've reviewed our overheads and cost of sales and there's virtually no area a cost reduction can be made. Our management information is fairly good for a company of our size given I am the accounts department but I feel it isn't used as well as it could be so that's something I will mention when discussing these concerns with them.
The main reason the company is in a mess (excluding external factors which haven't helped) is as follows:

• A lot of cash is tied up in intangible assets for which no benefits are being received yet (nor are they likely within the next year). A lot more cash is needed to keep progressing as well.
• Over stocking
• Redundant stock (provision has been made)
• Bad purchasing
• A short term attitude which is hard to shift, management rarely look past the next day!

I have expressed my concerns in the past about this. I think what I will do is get everything written down so I can show them the implications of their actions and ultimately tell them it has to stop. I don't want to spend my time correcting errors when I could be proactive and looking ahead to 'stop the rot'. I know what their response will likely be though "If you insist on this, the stakeholders will not accept our poor performance and we will be forced to shut down and everyone will lose their jobs". That's not a nice position to be in but there's little else I can do. Besides, I don't actually agree that is the case.

Carlbl

If your bank factoring your invoices where to carry out an audit there could be terms in the service agreement which they could use to withdraw the facility, i guess it would depend on the values. i would have thought it would also cause problems when carrying out credit control.

blobbyh

Pre-invoicing is absolutely against the terms of a factoring agreement but in my experience of doing this (from 2006-07) the banks generally turn a blind eye. They're so desperate for your business that unless it becomes too excessive they'll let it continue since they (usually) still get paid anyway.

Let's face it, banks sell factoring as a supposed way of rescuing aka exploiting cash poor companies and is often a slippery slope to eventual insolvency. It doesn't take long for a company with funding problems to realise how they can exploit it. My ex-directors though financially weak were very strong in character and we ran rings around the factoring company until we predictably went pop earlier this year. Whenever ours asked to come in for an audit we simply said no and they went away. We did this for twenty months and it was greed elsewhere that blew the company.

Incidentally, do you raise many credit notes and are these monitored by the factoring company?

Gianni

I agree with blobbyh, but do feel factoring can work for a company however it's advisable to get off it as soon as you don't need it. I personally think (and can see why) companies become reliant on it and I imagine it's rare they are ever able to get off it. In terms of credit notes, we have to keep within 3% each month which just means we often defer credit notes between months to stay within the limit. Besides, I rarely have the time to look at credit queries so this probably suits them although having reviewed them earlier today harsh talks will need to take place tomorrow.

Carlbl, it does create problems with credit control! In my view all of this is just unneeded hassle, my time should be concentrated on looking forward and being proactive, not having to react and constantly tidy mistreatment and mistakes.

Ultimately I think the answer is to look for another job.