Optimizing back office operations are challenging. As a wholesale exec, you have to remain competitive at all times. You need to develop ways to reduce your overhead costs, increase your revenue, and help overall growth.
Obtaining personnel who are qualified in the specifics and nuances of your wholesale company can be hard to find and quite expensive if you are lucky enough to hire the right people. When workers are less qualified, they’ll be less familiar with your overall business, the nuances of your specific product lines or categories, or the compliance guidelines of your major customers.
When you have the right teams and strategies in place, you can reduce costs and increase customer satisfaction. You can focus on your core business: product, design, and sales.
A good number of wholesalers have had success by hiring third-party services for their business. When you find talented experts, you may receive higher quality work and increase the efficiency of your back office operations. The right third-party service can help your business expand by tackling back office tasks, freeing you up to focus on increasing your profits. But if you are considering that approach, be careful to avoid some common pitfalls.
Back Office Functions Are Getting Costly
Inefficiencies in the back office drive up costs on several levels. From labor to infrastructure costs, your back office can be a financial strain on any company. Your office team can become overwhelmed and sloppy if you experience dramatic growth or seasonal peaks. During the lulls they may not have enough work to remain productive.
For example, wholesale companies may use cross-training for their back office team. They are trained for other roles, but when conditions change, even a few months later, it takes time to ramp up when switching to the cross-trained roles. As a result, teams may increase your company’s costs due to errors and work delays.
Back office functions can be costly in several ways:
- Staffing every back office function with a full-time employee might not be the best approach as you may not have enough work for them in slow periods. This can result in having one employee managing multiple functions or others taking on work in addition to their current ones when business becomes busier.Problems arise when unqualified employees take on multi-tasking back office jobs they’re unfamiliar with, which can cost you far more than you’d realize. According to the American Psychological Association (APA), even brief mental blocks created by shifting between tasks can cost as much as 40 percent of a person’s productive time. This may mean extra costs in the time they take to complete a task or even result in costly chargebacks if errors are made.
- Staffing your bookkeeping or accounting departments with qualified staff can really increase costs, so some companies use their office manager or another office employee to assist with accounting and bookkeeping tasks. If they have little or no experience in these areas they can reduce the accuracy of your monthly financials and led you astray in your margin calculations.
- Late or inaccurate financial statements can result in reduced borrowing bases, difficulty obtaining financing from factors, and require the help of a qualified accountant to fix any errors. All of these contribute to increased costs and stifling your company’s growth.Any errors in your accounting also have the potential of damaging your reputation with your suppliers and customers. Overpayments can lead to serious cash flow problems.
However, when you have the right strategies in place, you can effectively improve your back-office operations to increase productivity, reduce errors, and minimize costs.
Outsourcing lets you cut overhead by paying for the services you actually use. What are the benefits outsourcing provides?
Outsourcing enables you to:
- streamline your company’s workflow
- access a larger talent pool
- reduce infrastructure and associated real estate costs
- increase efficiency, productivity, revenue, and cost savings
- avoid huge recruitment outlays
- reduce your management responsibilities
- reduce paperwork
- focus valuable time, effort, and resources on the core areas of your business
- realize increased savings and revenue in a short period of time
Top Wholesale Back Office Functions and How They Cut Costs
International financial research and consulting firm Celene found that cost-cutting is the main driver for outsourcing’s rise in popularity. There are several areas ideal for outsourcing as discussed here.
Accounting is a critical part of any business. Bookkeeping is crucial but can be a mundane activity. Both use significant staff time. Sometimes they are simple tasks and other times they require high levels of proficiency, accuracy, and experience, so it can be difficult to gauge how much to spend on salaries.
When you outsource your accounting and bookkeeping services, you can see a 30-50% cost reduction. In doing so, it also enables you to focus on your core competencies. When you outsource your accounting services, you not only reduce costs but have more opportunity to increase your income.
If you outsource accounting services you can focus on your core competencies. It frees up valuable time to grow your wholesale company, and eliminates tasks like recruiting, hiring, on-boarding, and managing employees.
Your cash application is a time-sensitive process that involves your accounts receivable. Incoming payments are applied to the corresponding customer invoices. The payments can be cash, check, ACH, or a wire transfer (EFT). All payments must be applied, deductions tracked, and reconciled with your factor aging.
Like data entry, cash application can be mundane work. Yet lots of your net profit is at stake. So you need good systems and qualified personnel.
It is possible to automate the process with the latest software technologies that feature detailed reporting and analyses. When you use outsourced accounting companies, they can complete transactions faster, and provide you with a decreased staff workload to reduce costs, increase proficiency, as well as reduce worker burnout.
Chargebacks and disputes
Chargebacks and disputes require special care. They represent cash straight from your bottom line. Deductions need to be researched, sometimes disputed, and often written off. Emailing for approvals and providing back up documentation can be inefficient. Executive sign-off is required and it becomes really easy to lose control of the process. And worse yet, chargebacks operate on a different time cycle from ordinary receivables.
Wholesalers need to be looking at two accounts receivables aging reports on a regular basis, one for ordinary receivables that you pursue as soon as they become due, and a second aging for chargebacks and disputes that are collected over a longer period of time. In order to create separate agings, all cash application transactions must be handled precisely. This kind of work takes knowledge, persistence, and strong systems.
An outsourcing company has the benefit of an accumulated knowledge base and more resources to throw at the problem.
Order Processing, Invoice Control, and Factor Assignments
When you outsource your invoice processing, you’ll receive a timely completion of this crucial process.
Invoice processing is a systematic process that begins once you receive a sales order. It involves accurately capturing your orders and archiving them in electronic formats. It classifies the required information and the data entered into your financial system. Proper data entry is highly important. It can be as basic as entering figures or copying and pasting data from spreadsheet cells, as complex as translating EDI files, or working with content coming from paper documents, images, and audio or video files.
Factor assignments involve assigning or factoring your accounts receivable as collateral for a short term, secured loan to increase business capital. Factors will pay anywhere from 65 percent to 90 percent of an invoice’s value.
Outsourcing your invoicing processing can handle a number of functions that include:
- performing credit/factor approvals
- creating time-sensitive factor assignments
- archiving original orders in whatever format is required
- archiving BOLs, PODs, and tracking numbers
- matching sales and factory orders to their invoices
- validating data for correct codes and values
- extracting data from line items
- performing EDI and e-commerce file imports and integrations
- logging every transaction
Your outsourced service provides you with real-time advantages that feature automation and accurate reporting, cost savings, and improved cash flow.
While there are a vast number of back office functions suitable for outsourcing, another that is worthy of mention is inventory control.
By outsourcing your inventory control functions and utilizing the latest inventory control apps, you receive the benefits of having an “in-house” software development team that keeps improving your business processes and developing new reporting functionalities without the expenses of an actual on-staff development team.
Cut Costs in Your Wholesale Back Office Functions
There are a number of ways you can cut costs for your wholesale business’ back office functions. Your accounting services, order and invoice processing, and inventory control functions are only several functions suitable for outsourcing. Your factor assignments, cash applications, chargebacks, and disputes are also strong candidates.
Outsourcing frees you from managing these specific services and lets you focus on the areas that are important to grow your business, save money, reduce your overhead, and increase your revenue.
Want to learn more about how you can cut costs in your wholesale back office functions? Get in touch with one of our knowledgeable industry advisors.
Wholesale Executive Insider is a publication dedicated to helping wholesale exes stay up-to-date with the latest industry insights to improve their operations and increase their bottom line.
Our team has deep industry knowledge, and a network of solution providers that help wholesalers increase profits and focus on growing their businesses. If you’d like to get free advice and recommendations on how back office services can help you focus on maximizing profits, feel free to book a time to speak 1-on-1 with one of our knowledgeable industry advisors now.