A Better Way to Report on Communications Cost Management

Typical though it may be and grounded in past practice when telephone service was only available from one source like water and power, just paying the telephone bill is far from adequate for effective communications cost management, now and in the future. However, it’s a good start and it’s not difficult to make incremental improvements over a reasonable time. At a high level, here’s what’s needed:

• Telephone expense needs to be accounted for in more detailed ways by purchasing and paying for all items of goods and services followed by coding and entry into the accounting system to drive expense reporting categories built around voice, data, paging, Internet access and function specific circuits, equipment, facilities and services such as two-way radio, paging, wireless network access, satellite transponders, and other items that find their way in haphazard fashion into the telephone expense subaccount. Once the basic capability to code, classify, and record the expenses in individual accounts, it’s highly likely the reporting side of the system will report in more detail.
• A second, or similar, version of the same form showing total telephone services expense, by department and location. This can provide the communications manager and corporate executives with a clear picture of the level of spending for each category of services across the organization’s sphere of operations.
• Addition of an asset category or list of all items of equipment driving depreciation accounts included in the expense summaries, by department or cost center, by location. This information should be equally available and apparent to anyone charged with budgeting, planning, and managing communications cost. Managing the cost of communications is not just paying the telephone bill anymore. It requires capital expenditure, and typically involves consultants and contractors. Moreover, there are strategic implications where call centers and Internet websites sell directly, or support customers.
• Separate administrative equipment and application specific or functional equipment. For example, if a real communications cost management department exists, its administrative equipment and software assets should be budgeted and reported separately from common communications equipment such as voice switches, routers, data switches, network interface devices, local area network (LAN) equipment, etc. This extends to news and other program centric production operations and facilities where communications circuits, equipment, facilities, and services are used to transport content.
• Depreciation expense should be derived from the asset category and given the same classification as basic communications expenses, broken out by voice, data, Internet access, and functional subcategories.
• Break out of maintenance contracts for software and hardware.

Before launching off into the budgeting and planning waters, let’s step back and make a point or two about what has been described and restate the importance of recording communications expenses and assets with sufficient clarity, and detail so they are clear and presentable to the executive bearing responsibility for making sure the organizations money is spent wisely and recorded properly.

Many organizations spend significantly more money than they should for communications equipment and services. Potential savings can range into the tens of millions of dollars or the order of 10% of earnings for the average Fortune 500 company each year. Most executives don’t like to hear this; they want to believe they have the best accounting and purchasing available. Others rely on outsourcing solutions or consultants working for contingency fees. Regardless of approach and level of success achieved, it is prudent to examine and review the organizations communications cost management process and practices. Properly conducted, it will ensure accurate, valid, proper accounting for and expenditure of the organization’s money.

Ideally, there are two versions of the departmental expenses summary. One is reality-based—accounting history—and the other is forward-looking—the approved budget. The rest of this chapter is devoted to describing each and how to build and use both of them to manage communications cost and effectiveness. First we will describe and define the ideal reports, then go into how to use them to get through the budgeting and planning process every organization goes through on an annual basis.

Invoices & Management Reporting | Major Billing Functions

Invoices

Invoices contain the details of how much the customer should pay to the carrier, when the amount is due, and other information regarding the bill. Invoices usually provide a customer with detailed information regarding the source of the charge (date and location), reasons for the charge (service provided), and the amount of the charge. Figure 1 shows a sample invoice.

Figure 1: Sample Invoice

Management Reporting

Management reports provide information to finance, sales, and operations on the performance of the system. Reports can identify problems such as, silent churn, potential new services, and network congestion. Churn is the process of customers disconnecting from one telecommunications service provider. Churn can be a natural process of customer geographic relocation or to may be the result of customers selecting a new service provider in their local area. Silent churn is the process of customers disconnecting from one telecommunications service provider due to a competitor’s influence. Silent churn is usually the result of inadequate customer service or lack of competitive rate plans. Customers that are transitioning to competitor’s services will show rapid declines in usage of service.

Management reporting can also be used to discover new services. By reviewing call patterns, churn and silent churn patterns, and customer feedback, managers can determine which new services may be good candidates for their system. CDRs and network activity can also indicate areas of network congestion and corrective measures (rerouting or adding resources) can be accomplished to overcome the challenge.

Invoicing

Invoicing is the process of gathering of items to be billed (rated CDRs) that have occurred over an invoice period, adding additional charges and credits that are not related to specific calls, and preparing the information (formatting) so it may be presented to the customer in a clear way. Invoices may be delivered by mail or in other formats such as by email (e-commerce).

Processing Payments

Processing payments involves collecting assets to settle the customer’s invoices. The typical form of payments that are received from customers include checks, cash, wire transfer, credits, and credit cards. However, other payments or credits may be applied to the customers account.

Recording the payment to the customer’s account is called posting. Posting usually involves using a payment coupon that has an account number on it and posting the received amount of money to the account. In the ideal situation, the customer has provided the payment coupon with the correct amount. In other cases, the customer may have not included the payment coupon or may pay a different amount than indicated. In this case, posting of payments may result in errors such as posting to the wrong account or applying payment new invoices instead of old invoices.

Posting to the Financial System

The billing system records and groups financial details (receivables and payables) for the company. Periodically, summary information is transferred into the general journal of the company’s accounting system. This summary posting groups different types of billing charges into summary totals to be posted to different financial accounts. These types of accounts include receivables or expenses and each account is assigned a unique number (in the financial chart of accounts). For example, payments received by credit card are usually categorized differently than payments received by cash and these totals will be recorded in accounts with different account numbers.