For the past one decade, FM sector has seen tremendous growth in India; however the service providers would find it difficult to maintain their profitability unless key areas like manpower availability, SLAs, fund flow etc., are addressed both at managerial and proprietary levels. Clean India Journal spoke to FM and Banking professionals.
Liju Mathai, Director-Vema Hospitality Pvt Ltd: We don’t have any funding problem as we are able to get the loan worth 60% of the bill paid by our contractor, but we find difficulties in framing SLA with our clients. If in a contract we do show the requirement of 10 janitors, clients do often shorten it to eight, which becomes a challenge as at the same time other parameters like quality have to be kept at par to maintain the brand name.
Bharat Joshi, Proprieter-Realvalue Facility Management Services: Clients normally release the payments after a month or two, till the time we have to make essential payment like wages to workers. Now-a-days, despite sealing a low contract deal, clients expect latest cleaning equipment and tools which are very costly. At times it takes lakhs of rupees to buy the equipment and get the deal done. Co-operative banks do provide the loan on the purchase,
but support from other banks might help the service providers.
Sunil Shirole, MD & CEO-YEN Capital: A service provider can avail the working capital facility from banks such as cash credit limit, overdraft limits. If the account holders find themselves short of money and knowingly make an insufficient-funds debit, banks accept the associated fees and cover the overdraft with their next deposit. Varying from bank to bank, overdraft limit doesn’t require any other collaterals, but the facility exist in all the banks which depends on the receivables.
What a provider with low liquidity can do to tackle its funding issue is to consult the bank with all the necessary documents. The other way is to consult the client requesting them to make payment directly to the bank. Suppose a facility service provider bags a contract with Reliance and as per the contract the provider is supposed to get five lakhs on monthly basis. The contract is usually done for a year and later renewed for another year. The provider can ask for a clean overdraft with the obligation under the contract that the client would deposit the amount directly to the concerned bank. This improves the reliability and security for a bank.
As far as machines are concerned, loans are available against the margin: 20-25%. Normally, they may ask for other securities such as personal guaranty, residential or third person guaranty. If the machines are very costly, then banks may have to make 20-25% down payment initially.
Virendra Kumar, Director-EverGreen Hospitality: Cleaning Industry and Facility services are still in the nascent stage. In a situation, when awareness is low, difficulties are more, purchasing is complex; policies must be made a bit simpler to encourage the necessary investment.
Sunil: Yes, awareness is important. While going for a loan proposal, you must follow the rules – provide the necessary documents such as contract papers and other assurances. Essentially, a bank won’t give the loan if there’s not enough security for them. Hence it’s a wise decision to involve clients in the process.
To make things simpler, what further can be done is to become a member of the banking associations. There are associations such as Chambers of Commerce or All India Association of small Industries those help small scale companies in many ways. If facility management & cleaning Industry has not found enough representation then, Clean India Journal may step forward and can take the initiative.
Cleaning Industry requirements are small compared to other industries. Small banks such as Co-operative banks do help the necessary assistance. They can provide the loan against equipment, security and contract. As far as better policies are concerned, again representation is a must which so far is not being seen. With enough attention and awareness, banking sector too may come up with necessary plans and proposals that will help the industry further.
Solving the financial issues faced by FM Managers
To take control of your maintenance budget it is important to have accurate accruals, accurate invoice validation and efficient upload and storage of financial information.
FM managers often face the issue that their accruals are not reflective of actual costs but are based on fixed accruals. Furthermore, accrual figures are often not reflective of changes in work orders such as cancelled jobs and the calculation does not take into account reactive jobs done under comprehensive contracts or warranty and parts added.
A system such as the Ostara CAFM system allows you to allocate average order values (AOV) to work orders specific to the fault type on the job. Your AOV’s can even take into account seasonal and geographical variances. Ostara also takes into account the kind of contract the job is associated with and any assets it relates to and determines whether the asset is under warranty when calculating the accrual.
The accrual is updated in real time based on the job status and contract associations. Using either ATAS (Automated Telephone Attendance System), Ostara Mobile (multi-platform smartphone application featuring QR codes and offline capability) or the Ostara Web Portal, real time updates are made to work orders with time on/off site, and parts used to allow for accurate calculation of attendance costs to the minute and based on how many engineers attended. This actual calculated cost will replace the AOV and now reflect the actual time spent on site and therefore the expected invoice value.
In order to ensure that these new calculated costs are a true reflection of agreed contractual rates with contractors the Ostara CAFM software gives you the ability to set contractor rates by three separate mechanisms:
• A day specific hourly rate (including bank holidays) for in/out of hours, with call out fees and inclusive hours taken into account.
• Inside SLA/Outside SLA – rates (per specific day) that determine the rate based on either achieving or failing the service level set on the job.
• Attendance Response times – bandings of rates per specific day based on attendance with set time periods, for example 0-4 hours, 4-8 hours, 8+ hours etc would each hold a different rate.
Accurate Invoice Validation
So the completed job now shows an accurate calculated cost based on the contractor rates, the time spent on site and any parts used. These costs are based on the actual logged Start and Stop times rather than values based on the requested call out time/ETA time/or SLA agreed time.
Often the actual parts that have been used on a job are not known until the invoice is received. With Ostara the contractor will have updated the work order with the parts used on completion of the job so all that is now needed is to validate that this is what you are being charged for.
Contractor invoices sometimes show variances to actual due to rounding and general errors or the fact that call out rates charged can be reflective of when they were called out, as opposed to when the contractor actually attended. Sometimes the invoice may show pricing based on attendance times requested rather than attendance times achieved. With work order costs calculated automatically by the system to the minute, any errors introduced by the invoicing process are immediately visible and a decision can be made to accept or reject on that basis.
Efficient upload and storage of financial information
Many FM departments or the associated Purchase ledger/Finance departments, store information about costs in excel spreadsheets which allows for input/manual errors and the potential for data to be amended (without audit trail) by anyone who has access and the potential loss of files and data. Holding all of this information in the Ostara system removes all of these issues.
The invoicing process can often be a lengthy one, especially when invoices are queried. With access to the system via the ContractorPortal, the contractor can view the invoice approval status and respond to queries, negating the need for an exchange of emails or telephone conversations to deal with such queries.
Invoice details can be electronically uploaded into Ostara with a copy of the invoices attached as a PDF or any other format. A paper copy is therefore not required avoiding the potential loss of paper invoices and allowing for instant retrieval.
Invoices input into Ostara can then be exported and uploaded into the Accounting system at the push of a button in order for payment to take place avoiding the need to manually input them. This process improves both efficiency and accuracy.
Neil Harrison,
CEO-Ostara Systems Ltd, UK
