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Cut-off - an essential decision-making tool for service companies

By Jean-Baptiste Sachot, 11:00 AM on July 1, 2016

The cut-off is a periodic statement that operates by linking costs and products to a period of time. This is a situation that highlights what is attributable to the period in question (often a financial year). This operation, which is compulsory for all companies at the annual closure of accounts, makes it possible to fix accounts which will not be challenged by any subsequent adjustments. The result is an unquestionable statement of the company's financial situation. It is then possible to communicate the situation (or not), depending on the company's legal obligations and its communication strategy. Cut-off is more than a legal obligation and can be carried out at strategic points within the company, thus becoming a tool that aids in decision making.Cutt-Off-akuiteo.png

Therefore, cut-off is an essential tool in company management which gives the CFO and the management accountant a snapshot, at a given time, which is stable and reliable.

A management tool working for the company's commitment

Once restricted to the end of the financial year, cut-off is becoming increasingly common. Half-yearly seems to be the minimum, quarterly the sensible objective, and some companies even apply it every month.

Why? Simply because the statement of account has become a management tool rather than a purely accounting and regulatory tool. Cut-off has the undeniable advantage of indicating monthly turnover "earned" by the company, beyond the raw numbers of existing dashboards.

Also, by the calculation of liabilities, it makes it possible to offset the results recorded on each project. A positive margin is a good thing, but knowing that the company is behind with invoicing in relation to actual production is another.

A tool that has proven to be useful for management by project

The cut-off decision-making tool is particularly useful for service companies, for whom the progress of intangible services cannot be deduced by a simple analysis of stocks and deliveries.

The differences between the provided and the invoiced, whether it's a question of invoices to be issued or of deferred revenue, are highlighted. And whether it's in the context of flat-rate or in-house services or those provided to a schedule, project monitoring is there to guide and prepare these operations. As for the CFO, they will verify the proper conduct of each project and confirm or rectify the proposed figures.

Integrated management solutions offer the automatic application of cut-off, resulting in a significant reduction in low-value-added tasks for support functions.

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