The Art of Managing Accruals

Key Takeaways from The Art of Managing Accruals Webinar:

• Automation provides 8 key benefits to accrual management
• Entering and adjusting accruals is simple with a TPM system
• Accrual reporting and analysis enables real time adjustments for accuracy

Webinar Hosts 🎙️

Meghan Hoover, Senior Project Manager, Blacksmith Applications

Jeff Wagner, Senior Project Manager, Blacksmith Applications

Most CPG and food organizations are still managing their accruals manually, exposing themselves to risks from inaccuracies and accrual surprises at the end of the month and year.

77% of our audience indicated that there accrual management process was at least somewhat manual, with only 23% taking advantage of automating the process.

Benefits of Automating Accruals

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1. Accuracy:
   Calculate daily, weekly or monthly accruals by using rates from trade programs along with invoices from current month.
   ✨ Automation interfaces the accrual rate from TPM right to your ERP.
   
2. Efficiency:
   Replace manual processes by using an automated, system-generated accrual posting that posts to your ERP system.
   ✨ Automation removes risk around entering information manually.
3. Flexibility:
   Post accruals at various levels of the product hierarchy.
   ✨ Automation generates accruals at whichever product or customer level works best for your organization.
   
4. Visibility:
   Review accrual postings at any time throughout the month.
   ✨ Automation provides the ability for you to make better forecasts and know how you’re going to finish the month.
   
5. Net Revenue:
   Post accruals at the customer and product level, thereby enabling in-month visibility to customer net revenue.
   ✨ Automation enables a month-by-month view of customer net revenue at any level in the product hierarchy.
   
6.  Functionality:
   Accrue directly from the program for distributor trade / brokerage. Create blended average operator trade accruals.
   ✨ Automation was built to manage the intricacies of operator and distributor accruals.
   
7. Simplicity:
   Set-up quickly and shorten the user learning curve through a easy to navigate system.
   ✨ Automation is easy because the set-up process is the same as setting up a program or promotion.
   
8. Audit Trail:
   Easily access accrual posting files and download for analysis and reconciliation purposes.
   ✨ Automation allows for daily or monthly accrual reconciliation.
   

Accrual Mechanics

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New Promotion

There are three main components:

1. Rate: the rate from the trade program
2. Volume: actual shipped volume that is interfaced from ERP on a nightly basis
3. Lump Sum: any lump sum program fees or costs

The accrual calculation is as simple as: Accrual = (Rate x Volume) + Lump Sum

For example, with a rate of $0.90 per case, with 5,500 cases shipped, and a $1,000 lump sum, the system will automatically post an accrual for $5,950 for the month.

Promotion Revisions

Often times there are changes to agreed upon promotion rates, so revisions are required to keep your accrual accurate.

Luckily, the revision process is simple. Once the promotion rate change is routed and approved in TPM, the accrual calculation will automatically update at to the new approved rate.

Sticking with our example, if our rate goes up to $1.00 per case, but all else stays the same, our accrual posting will automatically update to $6,500 for the month.

Actualization

Actualization occurs when we make the final accrued expense equal to the final trade spend on the promotion. This process can be automatically set to happen any number of days after a promotion ends, typically 180 days.

It is executed by calculating the difference between the accrued amount and final trade spend amount at the event level. Then the system will post the difference to zero out the account.

This could post a positive or negative amount pending whether we accrued too much or too little when we originally set up the promotion.

Final Settle Process

Here’s an insider view of the final settle process within Blacksmith TPM.

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Program Elements

Step 1: The user searches for program and clicks on program number.

Now, the approved program details are displayed:

1. Product
2. Dates
3. Rates
4. Lump Sum

Actual Spend

Step 2: The user clicks on $ sign associated with program to see the actual spend on this program

On the spent tab, you can quickly see the actual spend posted against this promotion in January. You can also click into the accounting documents related to this promotion.

Final Expense

Step 3: On the accrual tab you can see who released this accrual and when (for this example, it was Robert on 2/1/2022).

Step 4: After the final release, Accrued expense = Actual spend

Accrual Reporting

TPM is a warehouse for detailed accrual data at the individual promotion level, making it a great place to help you report out what’s been accrued, what’s been spent, what the open balances are and what’s been actualized.

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Direct Accruals Report

See the accruals versus actual spend by individual program. This includes accrual balance by program and shows the release settlement information.
✨ Evaluate and adjust individual accruals in scenarios where you are projected to over- or under-accrue.

Accrued & Paid by Fiscal Month Report

Analyze accrued $, paid $ and balance by fiscal month. View by program, distributor hierarchy & product hierarchy.
✨ Dive deeper than the totals for accrued and spent by viewing the trends monthly, allowing you to use the past month’s actuals to guide future forecasts. 

Invoice Level

Show accruals by invoice for any time period.
✨ This is really helpful for month-end close activities, like tying out invoices to accruals. 

Accrual Analysis Report

Analyze accrual rate versus your spend rates in real time, allowing for mid-year adjustments.
✨ Understand any discrepancies and adjust early, instead of working with an incorrect accrual rate and dealing with a big surprise in actual spend at year end. 

Accrual Analysis by Program

View the average accrual rate by spend type for all your programs and compare to the individual program volume and rates that actually come through.
✨ Make adjustments based on your higher volume programs to avoid over-accruing based on higher rate, lower volume programs.

Accrual automation was built to benefit your organization with program level detail and powerful, customizable reporting.

Check out more content on accrual functionality here.