Tax & Accounting Blog

Sales and Use Tax and VAT Compliance Now Key Cash Flow Opportunity – Part 2

Indirect Tax, Tax Automation March 28, 2009

Continued from Part 1

A Cash Flow Opportunity: Establishing an Integrated Tax Management Practice
Pay your sales and use tax or VAT late and you incur a penalty. Interpret one of the many new tax law changes incorrectly and you incur a penalty or risk an audit. The list can go on and on. The bottom line is that transaction tax management has a direct effect on cash flow. Mismanagement of your tax management process can result in penalties and interest charges. The flip side is that establishing a world-class tax practice can increase your businesses cash flow.

Progressive finance departments looking to thrive, not just survive in this economy know that an integrated approach, in which their technology, people and processes work seamlessly, is key to capitalising on the transaction tax management cash flow opportunity and are swiftly taking steps to optimise their tax management process.

The first step to seamless integration is centralised technology. Consolidating your tax management technology across multiple business systems eliminates manual tax determination done by staff. In addition, this centralised technology approach acts as the hub from which domain experts can set tax rules and establish corporate tax policies and best practices centrally, which is automatically disseminated across the company from a single source. The result is improved accuracy and reduced workload, providing the company with higher degrees of compliance at a lower cost of compliance.

Centralised technology effectively automates the tax compliance process for efficiency and should integrate with a company’s finance and accounting applications for sales, purchasing, payment processing and resource planning. Also, with a myriad of software delivery models – from software as a service (SaaS) or on-premise – businesses can now choose whichever model best suits their needs. But automation alone isn’t enough, especially if you automate errors.

Tax domain experts provide the multi-disciplinary expertise in tax law, tax policy, research and audit to ensure the highest level of service to your business. Smaller organisations particularly may lack qualified tax professionals experienced with all the processes required to achieve and maintain the highest degree of compliance, and often choose to outsource this function entirely. Whatever approach you take, whether in-house, outsource or a hybrid model, you must build a team of tax domain experts that can help your business navigate through changes or growth.

Best practices/processes ensure that your company achieves streamlined compliance across the complete tax lifecycle – from tax determination to return preparation to rapid reconciliation and preparation of audit reports. As compliance requirements change, your company is automatically kept up-to-date.

By creating a tax management practices consisting of centralised technology, domain experts and best practices, organisations such as Cisco, Tektronix, Hewlett Packard and Lenovo are not only saving tens of thousands of dollars, which can be used for growth initiatives, but are also eliminating the need to hire additional headcount to support expansion. During lean times, the companies best prepared and opportunistic are the ones that will come out on top. Weaker players will dwindle leaving market share available for the remaining players to pick up. While every aspect of the company should be reviewed and ‘recession proofed’, focusing efforts on the transaction tax management, an opportunity to increase cash flow, is increasingly becoming a top priority for savvy finance departments.