HKM uses EDI to ease bank reconciliation hassles

Film and television production company finds new system pays for itself almost instantly

Don't let the dollar signs deceive you - sometimes a small project can have a big impact.

Such is the case with the electronic data interchange (EDI) system adopted by HKM Productions, a film and television production company in Los Angeles.

The total cost of the system, which handles bank reconciliation and was installed by Datatech EDI Systems, a VAR in San Rafael, Calif., was only $2,000. But the savings have been tremendous.

Before using the new system, HKM hired a bookkeeper to handle its monthly bank reconciliation. The reconciliation took five to seven days every month, at a cost of $50 an hour, or $2,000 to $2,800 per month.

"So the system paid for itself almost instantly," says Larry Morris, CFO at HKM. But the EDI systems effect goes far beyond saved labor costs.

"Oh, the impact is huge," Morris adds. "Bank reconciliation is crucial. An accountant can't even begin to do work until the cash accounts are reconciled."

THE CHARACTERS AND PLOT. HKM, founded in 1982, makes feature films and television commercials. Clients include Miller Beer, Visa, American Express, Apple, and IBM. The company has a core staff of 25 employees, but its six directors, who produce commercials, here as many as 100 employees for a project.

The directors work as independent contractors, hiring staffers and renting equipment on behalf of HKM. They produce about 75 commercials per year. The typical budget for a commercial is $750,000 to $1 million.

"And it's all spent in about three weeks," Morris says. "The money is just pouring out. The trick is to track it."

Morris has to keep track of the checks that HKM writes, about 1,000 each month. He also has to keep a handle on the checks written by directors in the field. Although tracking cash flow in HKM's dynamic enviroment is challenging enough, Morris' job has been made more difficult by HKM's rapid growth over the past few years - it changed form a two-director, $7 million company to six director, $50 million company.

"I had to generate accurate financial information of a timely basis in a rapid-growth situation," Morris explains. "It was completely overwhelming."

The key ingredient for Morris to keep a handle on the finances is bank reconciliation, lining up the company's accounts and determining which checks have cleared and which deposits have been received. Of course, at any particular time, the bank statement may show a different current balance than the company's books, and knowing exactly what accounts for that difference is crucial to managing a business.

Before going to an automated solution from Datatech, Morris streamlined the bank reconciliation process somewhat by working out a cumbersome multistep system using Lotus Development Corp.'s Lotus 1-2-3 and Mircosoft's Corp.'s Word.

He had to export "check written" information from his accounting software (AccPac Plus from Computer Associates Inc.) into Lotus 1-2-3, calculate the data, import the date into Word, and then match that data against "check cleared" information received from his bank.

"The hardest step was that I had to parse all the data in the spreadsheet," Morris says. "There were six columns of information, but they all came into Column 1 - so I had to use a third party add on to Lotus 1-2-3 and bring all the data across."

Morris and his colleagues at HKM use 486 based PCs on a Novell Inc. NetWare network driven by a Pentium-based server from Hewlett-Packard Co. Retreiving the data from the server manipulating it in 1-2-3 speeded up the reconciliation process a bit, but the process itself remained manual.

"It was a lot of work, but after numerous false starts and countless phone calls to tech support, the system worked," Morris says. "The process took about 2 hours instead of several days. So to me it seemed like electronic heaven."

The drawback, however, was that the 12 steps were a pain in the neck. And also, Morris was the only one in the office who knew how to do them.

"So if I wasn't around, the reconciliation wasn't done," Morris says.

GETTING A NEW SCRIPT. Through a contact at an accounting firm, Morris learned about Datatech. Sigrid Marmann, Datatech's president, did a needs analysis for HKM and assured Morris that she could give him a more seamless solution.

Datatech specializes in financial EDI technology, which is a sort of cousin to the traditional EDI systems in which companies exchange purchase orders and invoices electronically, sending date in a standard format across a carrier service called a value-added-network.

Instead of a company-to-company link, the financial EDI provided by Datatech builds a link between a bank and the bank's client. and the information shared involves only deposits and withdrawls from the account.

A common shortcoming of EDI systems is their lack of integration with other programs. For example, with traditional EDI, companies receive data from a trading partner on a stand-alone workstation that handles the EDI transactions. The data arrives in standard EDI format (an ANSI standard called X12), which means that someone has to print out EDI data and rekey it into, say, an accounting software package.

With banking data, the information is transmitted not in X12 but in various standards common to the banking industry. Datatech's speciality is building links between those standards and the format used by an accounting software package. The process is known in the EDI industry as "mapping."

Datatech had to design an interface between AccPac Plus and the bank data. HKM's bank uses MicroLink, a cash management software program from BankLink Inc., a New York software developer.

"In order to do the matching, our system compares the check number and the check amount posted in the AccPac Plus system against the item that was cleared, as reported in the MicroLink data," Marmann explains. "If an item has cleared with a different amount, our system flags the item and puts it in the report and lists the discrepancy. With deposits, the system looks at dates and amounts in the `posted' system and the `cleared' system, and again any discrepancies are listed in the report and placed automatically into a file, which is retrieved into the general ledger system."

AWARD-WINNING PERFORMANCE. Morris begins his monthly account reconciliation by dialing out to the bank system and retrieving the MicroLink data.

"The he goes into Telepay Bankrec, which looks like another module of AccPac Plus, and he hits a button to import bank data, defines the file name to be imported, and the system imports it, and it's done," Marmann says. "He just prints out a report."

Marmann says Telepay Bankrec customers typically enjoy major labor cost savings: "HKM went from 40 hours to 1 hour. That's a 95 percent gain. But on average I'd say customers save 70 percent to 90 percent."

Not only is the system more efficient, but it also gives customers the ability to keep track of their money more accurately and know more about their cash position. For example, customers can do bank reconciliation every week, or even every day, if they want to. And the truly driven can invest the "float" in their accounts - that is, the difference between the balance that the bank recognizes and the actual lower balance - in overnight investments.

Morris, however, says he doesn't invest the "float" in his account, and he's satisfied to do reconciliation once a month.

Since the initial implementation, Datatech has had to make some changes to the HKM system. For example, when BankLink upgraded its MicroLink software, Datatech had to make modifications to Bankrec.

"They used to require users to download three seperate files, but now they combine all the information into one single file, and so we had to change our software to accommodate that," Marmann says.

Also, Computer Associates upgraded AccPac Plus, which again meant that Datatech had to accommodate the new version by making changes in Bankrec.

The changes have made an efficient system even more efficient. Now, with the bank reconciliation process reduced from a manual, 12-step, 40-hour process to one that takes the push of a button and 1 hour, Morris and HKM are truly in electronic heaven.

2 PARTS TECHNOLOGY 1 PART PERSISTENCE

When working on financial electronic data interchange (EDI) projects, such as the one completed at HKM Productions, the most difficult part is not the programming, says Sigrid Marmann, president of Datatech EDI Systems. In fact, it has nothing to do with technology.

"On the HKM project, I had to talk to the product manager at the bank to obtain permission to grab their bank statement information," Marmann says. "That was very long and tedious process. It took about two months."

Larry Morris, HKM's CFO, says he didn't think Marmann would succeed.

"I was more than skeptical," Morris says. " I said it would never happen they're never going to talk to you. But Sigrid said she could do this. I thought any person crazy and/or persistent enough to call a bank and get them to cooperate with something as sensitive as banking software was a worthy try. So I said, 'OK, if you can do this, I'm buying."

Daniel Lyons is a free-lance writer in Ann Arbor, Mich.

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©1996 Datatech EDI Systems.