public finance payables - the 30 day rule
TRANSCRIPT
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Public Finance Payables
The 30 day Rule
Innovation and Technology is our game
Wessel Roux
Jan 2016
What gets measured??
www.mantramax.co.za
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Public Finance Payables - The 30 day Rule
1. Introduction
2. Current Metrics - National Treasury (South Africa)
3. Mantramax Weighted Index
4. Performance Dashboard
5. Implementation
6. Contact Information
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1. Introduction
Government Departments and Municipalities in South Africa are governed by the Public Finance Management Act
(PFMA) and Municipal Finance Management Act (MFMA).
The PFMA 38 (1) (f) and Treasury Regulation 8.2.3 stipulate that all invoices must be paid within 30 days from re-
ceipt. The method of accounting for invoices can be either the Accrual Basis or Cash/Modified Cash Basis.
Suppliers generally use the Accrual method
and herein lies the general perception that
Government Departments are slow/late payers
of their accounts.
Governments only measure from the Receipt
Date which can be substantially different to the
actual Invoice Date from the supplier.
MFMA Circular No 71 dated Jan 2014 introduce a set of
Uniform Financial Ratios and Norms for Payables on
page 16 (D) Performance Management :
Creditors Payment Period Formula
Total Creditors Outstanding
——————————— X 365
Credit Purchases (Operational + Capital)
The Norm is stated as 30 days
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2. Current Metrics - National Treasury (South Africa)
Current monthly reporting requirements per Treas-
ury Instruction Note 34 dated 30 Nov 2011 are :
• Number of Invoices not paid within 30 days
• Number of Invoices paid within 30 days
• Value of Invoices paid within 30 days
From the current reporting requirements, it will be
impossible to take into account the weighted effect
of the value of invoices and payments in relation to
totals. This is essential to compare results on a
monthly basis.
Early payments for certain service providers should
be indentified, that could indicate unfair bias.
These requirements will not reflect :
• Effect of early and late payments in relation
to payment values less or more than 30
days.
• Total values of invoices and payments in the
current month.
• Invoice and payment days.
An example of the limitations of the current
metrics:
An invoice paid on day 31 of the reporting
period will have the same status if it was
paid after 120 days.
There is therefore no incentive for the
controller to pay old invoices over the 30
day target period.
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3. Mantramax Weighted Index
Applying a weighting metric the influence of early
and late payments is highlighted and also stated in
relation to its value.
This can be used for the management of preferential
payments terms for certain groups i.e. SMME’s etc.
Each supplier’s transactions can also be calculated
individually and any comparisons drawn to identify
unfair bias towards a specific supplier.
The method is objective and provide management
with a summarised performance metric that can be
consolidated to any level required.
The integrity of the information is more stable and
consistent and require no interpretation or input by
the accounting staff.
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3. Mantramax Weighted Index (cont)
Value not Paid after 30 Days Index of open payables (not paid). This metric
should receive the highest priority as it indicate
suppliers not settled within the 30 days target period.
Value not Paid within 30 Days Index of open payables still within the 30 days day
period (not yet due). If the invoices are not settled
within 30 days then it will be allocated to the metric
above.
Value Invoices not Received Index of invoices not received or captured on the
BAS system, There are no fixed target and the level
should be monitored periodically and specifically at
year-end as it could indicate accruals to be made.
Days to Process There is no fixed benchmark target but a downward
trend will indicate better efficiency of the payables
department.
Total Days Paid Index of all payments made. The ideal benchmark is 30
days and levels below 30 indicate the adherence to
Treasury regulations.
Levels above 30 indicate non-performance. If the
benchmark level is well below the 30 days then it
indicate that suppliers are in fact paid too early.
Value Paid within 30 Days
Index of payments made within Treasury regulations.
The benchmark will always be 30 or less and the ideal
level is 30.
Value Paid after 30 Days Index of payments made outside Treasury regulations.
The benchmark will always be greater than 30 and the
level above indicate the efficiency and adherence level.
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4. Performance Dashboard
The sample dashboard illustrate the
monthly and year-to-date performance
metrics of the Key Indicators.
Senior management only need to
monitor the axis points in relation to
the targets as illustrated in the per-
formance graphs.
The metrics are free from external
manipulation and data is obtained
from the transaction lists from any
accounting system.
All Days Ageing metrics are weighted
by invoice/payment value and Days
Outstanding/Paid.
Exceptional transactions will be
weighted but not distort results in
comparison with the average methods
commonly used.
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5. Implementation
Requirement Transaction data from any Basic Accounting System
(BAS) can be used by means of a standard report in CSV
format with the following fields :
- Supplier Number
- Supplier Name
- Transaction Type (Invoice/Payment/Credit Note/Jnl)
- Value
- Date of Invoice
- Date Invoice Received
- Payment Date
Optional Information (for consolidation) - Vote Number
- Tender Number
- Project Number
- Department
- Creditors Controller
Installation The performance system can be implemented on a
departmental server with a reporting feature to export
result to a higher reporting entity.
Data will be extracted daily as part of the accounting
day-end procedure and will be available to managers
the next morning.
User input will be minimal and the process does not
require skilled operators as it is systems driven.
Consolidated Reporting Depending on the optional information, the system can
be drilled down Project Number as an example.
Results can in turn be consolidated to Departmental,
Province, Ministerial and National level.
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6. Contact Information
Mantramax (Pty) Ltd
Attention Wessel Roux
Cell 082 852 9924
Email [email protected]
Website www.mantramax.co.za
We look forward to hear from you