This topic outlines why it is essential that all chargeable items are fully and accurately recorded.
TOT Shirts Limited exists in a highly competitive sector characterised by fast-turnaround, high volume, cost sensitive market participants.
In order to remain competitive, and maximize profitability, it is essential that we not only cover our costs but exceed them.
It is thus a fundamental obligation that, for every job, we accurately capture and record, and are therefore able to invoice our clients for the costs incurred whilst undertaking the work necessary to process their orders.
Costs that should be levied onto clients in this manner are termed "chargeable costs" in this topic.
Additionally, to mitigate potential client invoice disputes, it is essential that chargeable costs are communicated to clients as soon as they are known, re-communicated should they change, and moreover that client approval is sought and obtained.
It is critical that all Managers fully appreciate: -
The relationship between profitability and cost.
The responsibilities they have in propagating this mind-set to staff via their behaviour and working practices.
In a fast turnaround business such as ours, chargeable costs, may well change as the dynamic of the job order changes.
For example:-
Artwork origination costs. These are typically estimated based on an assumption of straightforward colour separations, and hence likely to increase should the effort required to create the artwork be greater than assumed.
Fulfilment costs increase as the complexity (and thus attendant processing effort) rises:-
Picking and packing stock if not related to a production run
Splitting the deliveries by size and/or other variables.
Altering despatch methods - changing couriers and/or courier delivery times.
Perhaps the one thing that can be safely assumed is that chargeable costs, even if thought to be known at the outset of a client order, can and most likely will change as the job progresses.
In simplistic terms, there are two types of costs that customers will encounter:-
Costs where customers know what they
are getting
For certain customers / order types there is a fixed cost
for certain processes.
Alternatively, the customer may have approached and requested a fixed
quotation.
Costs
that are not definitively knowable in advance.
As outlined in the initial paragraph ArtWork origination and Fulfilment
costs are not totally knowable in advance due to the number of variables
involved, and the dynamic nature of the activities associated with
them.
Given the above, it is essential that when any quotations are provided to clients for proposed work that they contain suitable disclaimers stating that "charges are subject to change" and that "client instructions for TOT Shirts Ltd to proceed is taken as their acceptance of this".
It is a fundamental responsibility for managers at TOT Shirts Limited to ensure that all "chargeable costs" incurred in their departments for the processing of a client order are:-
a. Communicated to, and agreed by, the customer.
b. Approved by the client, and client approval recorded.
c. Correctly and consistently recorded on the corresponding job order / fulfilment.
Furthermore, in situations where there are additional costs in excess of those the client may have been informed of at the outset of a job order, it is the responsibility of the manager concerned that the client is informed of these, and that their approval is sought and recorded before the work commences to ensure that there are no disputes when the client is invoiced.
Sources of Chargeable Items
Invoicing at TOT is generally made up of all or some of the following components:-
Origination: i.e. ArtWork / Stencil Making
Decoration: The Process line applied to a product
Product Costs: i.e. the cost of blank garments if TOT supplying; if the customer is supplying there is a handling charge (currently, GBP 0.10) per garment
Fulfilment Costs: Handling charges, courier costs
There can be other incidental costs such as storage / handling and services that are chargeable