Why Manufacturing Companies Need Finance SOPs

🏭

Manufacturing companies in India face many daily tasks like handling invoices, taxes, and rules. Finance SOPs (Standard Operating Procedures) make these tasks easier, faster, and safer.

Here’s why they’re important:

🔧 Special Needs in Manufacturing

• Complex Costs: There are many cost types (materials, labor, machines). SOPs help track these costs properly.

• Lots of Rules: GST, customs, and labor laws are tricky. SOPs help follow the rules and avoid fines.

• Cash Tied Up: Money gets stuck in inventory and bills. SOPs help manage it better.

• Supply Risks: Vendors or import delays can cause problems. SOPs help reduce risks like forex losses.

• Big Machines: You invest a lot in equipment. SOPs help manage their value and track repairs.

• PLI Schemes: To get government incentives, finance needs clear records. SOPs help prepare them.

• Waste Control: SOPs help check losses due to scrap or quality issues.

• Tax Savings: Some locations or exports offer tax benefits. SOPs help you get these.

• Stop Fraud: SOPs ensure checks on billing and stock to catch fraud early.

📂 What Should SOPs Cover in Finance?

Below are key areas where SOPs can help in manufacturing finance:

📝 1. Purchase Orders (PO)

• Check if vendors have GST & MSME registration

• Always match PO with invoice and delivery note

• Set who approves what (based on amount)

• Flag reverse-charge GST cases

💸 2. Vendor Payments

• Pay MSMEs within 45 days (mandatory)

• Match GST credits before payment

• Deduct TDS if needed

• Pay using cash flow plans

🧾 3. Sales & Receivables

• Set customer credit limits

• Auto-generate e-invoices and e-way bills

• Follow up on late payments (60/90 days)

• Set aside funds for unpaid bills (after 180 days)

📊 4. Tax & Returns

• File GST monthly

• File TDS quarterly

• Track export duty refunds

• Match tax returns with your books

👷 5. Payroll

• Separate wages for plant and office staff

• Auto-calculate overtime

• Deduct PF and ESI

• Link attendance with output

📦 6. Inventory Accounting

• Use FIFO or weighted average method

• Do stock counts monthly

• Write off unused stock every quarter

• Reverse GST credits on scrap

🏗️ 7. Fixed Assets

• Track depreciation as per company and tax rules

• Do yearly audits of machines

• Record major repairs

• Check asset value yearly

💰 8. Accounts Payable & Receivable

• Plan payments in advance

• Send reminders to customers

• Match accounts monthly

• Give early payment discounts if possible

🧮 9. Costing & Budgets

• Compare planned vs real costs

• Track scrap, energy, and labor costs

• Monitor PLI scheme budgets

🏦 10. Bank & Cash

• Match bank accounts daily

• Plan cash needs for next 3 months

• Check petty cash monthly

• Track loan EMIs and deadlines

📘 How to Write a Good Finance SOP (Step-by-Step)

Each SOP should follow this simple structure:

1. Objective

What is this SOP for?

🧾 Example: “To ensure vendor payments are done on time and correctly.”

2. Scope

What process and team does it cover?

🧾 Example: “Covers all vendor payments for raw materials at all plants.”

3. Roles

Who does what?

🧾 Example:

• Accounts Officer: Checks invoice

• Finance Manager: Approves payment

• CFO: Final payment release

4. Process Steps

List steps like a checklist.

🧾 Example for Vendor Payment:

1. Receive invoice with documents

2. Match PO, GRN, and invoice

3. Send for manager approval

4. Check TDS

5. Pay via NEFT and update records

5. Documents Needed

🧾 Example:

• PO

• Invoice

• GRN

• Delivery Challan

6. Timeline

🧾 Example: Pay vendor within 7 days of approval.

7. Controls

🧾 Example:

• 2-level approval for payments over ₹1 lakh

• Auto-numbered invoices

• Monthly account checks

8. Exceptions

🧾 Example: If PO and invoice don’t match by more than 5%, inform Procurement Head.

9. Software Used

🧾 Example: Record all payments in Tally Prime, using Vendor Ledger with TDS.

10. Compliance Checklist

🧾 Example:

• Match GST returns with books

• Deduct TDS as per rules (Sec 194C)