By: Jim Burke, SVP, Contracting & Pricing Solutions
Financial accruals have become a major headache for corporate finance teams in the life sciences industry as they are increasingly difficult to manage, and can lead to major business issues if calculated incorrectly.
The problem is that most companies don’t have an automated way of pulling all the data together, and calculating the appropriate accrual rate. Manufacturers do the calculations manually or in an offline tool. Depending on the company and the kinds of promotional programs they offer, calculations can range from the complex to the extremely complex.
Any calculation errors can have a significant impact. If the accrual percentage is too high for rebates and promotions, funds are essentially being taken away from other areas of the business, such as research and product development, which can help grow revenue. But if enough isn’t reserved, manufacturers could find themselves in a cash crunch, and money will need to be borrowed to cover obligations. If the amounts get to be too large, it can also be considered a “material impact” item for earnings reports.
There’s another aspect that companies are missing. Many organizations are spending more time and money on the mechanics of the accruals – the number crunching – than on understanding what the data is telling them. They’re missing an opportunity to analyze the accruals to see what promotions and programs are really driving the business, helping them expand market share and drive revenue.
To learn more about automating the process, key considerations, and recommendations, download our white paper on this topic.