Are you the weakest link?

Last weekend my bike chain broke. It was quickly fixed, as fortunately I had a "missing link" with me. Still, it's not how I envisioned the ride.

It was the second time this happened. The first time was during my very first ride on a mountain bike. I had no idea how to do maintenance on my bike and, in fact, no idea that it was necessary at all. Call it naive or inexperienced, but in any case it was not smart. Fortunately, I was riding with a friend who was prepared and had the missing link.

Link to your organization

Organizations work the same way. You know the well-known saying: a chain is no stronger than its weakest link. As with bicycles, too much pressure on the chain can cause it to break.

In your organization, you want to ensure that the VAT chain has no weak links.

A VAT return is based on information available in your business. There are several moments in the business process where decisions are made and where information and data are added or changed. Usually these are the following steps:

1. the ERP system contains the master data with information containing product, customer and warehouse location information;
2. the contract lays out the terms and liabilities;
3. the order contains the information about the actual price, shipping date and place of delivery;
4. the invoice contains all this information and includes a VAT treatment based on the logic applied to all the previous steps;
5. Then a summary of all this data is used as the basis for preparing a report that in turn is used for the VAT return.

There can be weak links in all these steps. As a VAT manager, it is therefore important to understand the process and who makes VAT-relevant decisions in the organization. And you should always be prepared to take action if one of the links breaks.

Be prepared for anything

The reason why my chain broke was that I had to shift gears abruptly because there were some people walking on the road and I had to avoid them while riding uphill. This shifting and the extra pressure on the pedals caused the chain to break.

What I mean by this is: there can always be circumstances that you are not prepared for. But in your organization, you can at least start by identifying the areas where there may be a weak link. Is your master data complete? Do employees have sufficient knowledge? Are your invoices compliant?

Is the logic of the system correct?

In the aforementioned steps, many consultants and technology companies focus on step 4. Namely, this is the step where the input from the master data and order are combined with the logic in the ERP system. Using a decision tree, the ERP system (or an external tax engine) determines the VAT treatment of a transaction, resulting in a tax code. This tax code drives the invoice layout and VAT reporting.

In many cases, the logic in the system seems to be the weakest link. Is the logic correct? Is the information needed to make a correct decision available? Is the result correct or is further specification needed?

The consultants and technology companies that focus on automation are obviously doing a good job. It makes information processing faster and decisions more efficient. But it remains btw: there are exceptions to the main rule and exceptions to these exceptions... Where technology thinks only in black or white, left or right, one or zero, implementing these exceptions can result in draconian logic for the ERP system. Or it results in practical solutions, where the system is not used to its full potential, or where certain mistakes are business accepted.

Look beyond the chain

Compare it to the bicycle: the ERP system is the chain that drives the machine. But it is the wheels and tires that provide sufficient grip. And a handlebar to determine which way to go.

So determining where the weak links in your organization are doesn't just mean looking at the ERP system or the supply chain. If this looks rusty, it's obviously a good idea to clean it or make sure it's well-oiled. But you should also look at the other parts of your business. Who creates the contracts or orders? Who sets the prices? Who decides where goods are stored, produced or purchased?

Tips for getting the message across

I hear you thinking, "sounds logical, but how do I convey that message in my business? No worries, here are some tips.

• Look to your CEO or CFO as the steering wheel. You can influence the direction by showing them where they are going. And to mark the easy or the dangerous paths through the VAT forest. Create a map of key VAT areas that you think need more attention. Make a list of incidents, examples and solutions and present them. You are the navigation system, as well as the mechanic, giving them the information they need to move quickly and smoothly in the right direction.
• Treat the AP section like the tires on your bicycle. Without a grip, you slip. So make sure these people know how to process invoices correctly. Trainings, decision trees or a help desk: make sure they have the tools needed to get information into the accounts correctly.
• Do you need a bell or lamp? Check with your legal team what are the main conditions they require for purchases and sales. In addition, see if there are some specific conditions you want to add or change to make your VAT life easier.

Know what you are doing

The final component of a great VAT ride is you, of course. If you are liable for VAT, you need to get on that bike, pedal and go for it. But you also need to be prepared. Look at the weather so you know what clothes to wear. Make sure you're wearing the right shoes so you don't slip off your pedals. And wear a helmet, just in case you crash.

What this simply means is that you need to know what you are doing. Stay on top of the latest VAT news and developments. Communicate with those around you and contact people in your organization who can help you. And use outside help where necessary. This can range from conducting a VAT Health Check, help with an ERP change or implementation, or training for you or people in your organization.

Like my bike, your organization may need some VAT maintenance, or a quick assessment to identify any weaknesses. Let me know if you would like me to help you with that.