Electronic Data Interchange (EDI) systems can massively simplify the order management process. However, they also require a system capable of processing and analysing a far greater data load than other applications. To work successfully with an EDI, an order management platform must have a framework in place to successfully capture order data, extract relevant information and deliver it to the right departments.
What Is An EDI?
An EDI is essentially a document exchange system that cuts most of the steps out of procurement. Traditional purchasing looks something like this:
- Buyer creates purchase order
- Buyer sends purchase order to supplier via fax or email
- Supplier receives purchase order and enters details into their system
- Supplier generates invoice
- Supplier sends invoice to buyer through fax, post or email
- Buyer enters invoice information into their accounting system
This is a lengthy process with a hefty paper trail and plenty of scope for human error. With Electronic Data Interchange all human involvement is removed. The buyer’s computer system and the supplier’s computer system communicate directly to issue purchase orders and receive invoices.
Lost In Translation
Unfortunately, many commercial order management systems lack the capacity to process EDI data effectively. This is because EDI systems rely on a handful of standard file formats, including EDIFACT, TRADACOMS, ebXML and others. Within each file type are different versions, such as ANSI 5010, which are updated on a regular basis. For EDI to work, both the buyer’s and supplier’s system must use the same standard format. If not, either or both partner must utilise an EDI translator – usually a third party application or a specific business service. Legacy order management systems are simply not dynamic enough to adapt to different EDI file formats.
Needless to say, this presents a barrier to EDI use in many supply relationships, with the result that most businesses depend on manual processes to capture these orders.
This is an inefficient use of time and can easily create order backlogs. It also opens up the order process to omissions and errors, especially when staff are working under high pressure during busy order periods.
EDI Compatible Software
Fortunately, a number of software applications do allow automated integration of EDI orders, even between companies that use varying file formats and versions. This includes our modular Prodigy Software System, which captures EDI receipts and automatically translates the order without the problems inherent in manual handling.
There are three main advantages of working with EDI receipts that can give your business a competitive advantage:
1) Reduced order costs: Orders can be received and invoices issued in a fraction of the time needed for manual input, boosting output and saving employee time.
2) Improved accuracy: With little to no human input needed, purchase orders are far more accurate, reducing the problem of waste and incorrect orders.3) Higher Efficacy: With higher throughput comes the potential to redeploy staff resources and IT assets to other functions, reducing your dependence on paper documents and allow you to streamline other parts of your supply chain.
Food costing software determines food costs at the point of sale to allow a cost-effective pricing strategy. A food costing application can help regulate waste, manage costs, save time and increase the profitability of your distribution business. Some applications manage individual food item prices and check against availability, while others compute the cost of recipes and food lists.
A food costing application is part inventory management system, part accounts package and part reporting/analytics tool.
Food costing tools are extensively used by restaurants, catering businesses and suppliers of prepared meals of all varieties. They can also be of great assistance to food distributors, wholesalers and other supply-side companies in managing costs and delivering customer demand.
Keep Control of Prices
Inflation and the reduced value of the pound has driven up the price of food imports. This places pressure on food service companies to balance raised costs with a realistic pricing strategy that still delivers an acceptable profit margin. Especially when supplying products for catering or pre-prepared meals, which can be difficult to quantify, care must be taken not to lose money per unit. At the same time, the end product must be seen by its market to offer genuine value for money – a tricky balancing act.
Food costing software can help you keep control of prices. By mapping out the products you buy you can trace actual expenses, compare suppliers and assess market tolerance for different pricing levels.
Calculating Your Food Cost Percentage & Ideal Food Cost
Most food costing tools work in the following way. For each step of the process we give an arbitrary value to show how the software can track costs, reduce waste and boost profits:
1) Starting Inventory £30,000
The value of your starting inventory is determined in terms of SKUs and monetary value.
2) Purchases £7,500
Purchase inventory is calculated for all new food supplies purchased during the accounting period. This can be set up to trace costs on a daily, weekly, monthly or annual basis as required. Purchases can be traced throughout the period, e.g. were there any returns, additional purchases etc.
3) Final Inventory £32,000
At the end of the accounting period a final inventory is taken, linked to a total monetary value.
4) Sales £10,000
The software will determine your total food sales during the accounting period.
Now for the fun part.
The program may calculate your food cost percentage using a variation of this formula:
(Starting inventory + Purchases –Final inventory) / Sales = Food Cost Percentage
(30,000 +7,500 – 32,000) / 10,000 = 0.55, or 55%
Is our example of 55% a good food cost percentage? One way to determine this is by benchmarking it against averages in your sector, but it is more useful to compare your actual figure to your ideal or target food cost.
Food costing software can also help you with this side of the equation, using two factors for each type of food item:
- Total cost (Item cost x volume sold per accounting period)
- Total sales (retail price x volume sold per accounting period)
The Ideal food cost can then be calculated as Total Cost / Total Sales. For example: Costs £3,000, Sales £10,000:
3,000/10,000 = 0.3, or 30%
Improving Your Profit Margin
Armed with a regular and accurate flow of pricing data for each food item, you can establish strategies for optimising your figures, bringing your food cost percentage in alignment with your ideal food cost. There are many ways you can do this, including selective price rises, varying suppliers, adopting seasonal products, seeking out more popular, better selling items and so on. A food costing tool won’t provide the answers to your costing strategy, but it will arm you with the data you need to implement meaningful changes and keep track of your profitability. Food costing is just one of the functions of our Prodigy Food Services platform.
Before you create a price structure for your food and drink products, there are a few essential items to think about, such as calculating demand for meal ingredients, drinks and other items used by pubs, hotels and restaurants. The price of food products switches on a regular basis, as the price of products varies with the time of year and other factors. It is smart to calculate food expenses prior to introducing a food item, thus you can make use of this choice to assist in calculating the consumer’s price. Supplying the catering industry, you should likewise calculate real food costs as carefully as possible to enable your customers to meet consumer demand for particular items.
Food Pricing Strategies in the Catering Industry
Pricing is the tactical procedure you undergo to determine what price to give to every unit of drink or foodstuff. In the food wholesale industry, pricing food products begins with analysing food costs. The price of items is a factor – e.g. how much you pay for a consignment of bananas – but so is perceived value by consumers, e.g. how much your customer’s customers are prepared to pay for a banana split in their restaurant.
Pricing solely on fixed margins for foodstuffs risks making products too pricey for customers to use in their menus. On the other hand, keeping costs artificially low to appease consumer demand can lead to you taking a hit to your own margins, which are normally slim to begin with. There is a delicate balance at play.
Food Product Price Calculators
As a supplier to these establishments, how do you meet acceptable price levels for ingredient products while still turning a respectable profit – especially when your purchase prices fluctuate more extensively than end-user demand? Sustaining overall margins involves a complex pricing structure and a strategic approach to pricing.
A food price calculator transforms a specific price for a food product per imputed quantity of volume or weight to equal prices for every single unit of several other volumes or weight units. The calculator can convert anywhere between volume and weight units for virtually any food product with identified density.
Establishing a Working Strategy
Remaining on top of food costs is vital to operating a successful food service business. Food product price calculators make it easy to monitor, calculate, and forecast the price of your food products and maintain competitive prices for your customers.
How Will It Affect Me?
MTD-VAT will affect all VAT registered businesses and organisations with an annual taxable turnover above the VAT threshold of £85,000. This includes unincorporated businesses, partnerships, companies, LLPs, trusts, non-UK businesses registered for UK VAT and charities.
A six-month deferral will apply to around 40,000 of businesses who fall into one of the following categories:
- ‘Not for profit’ organisations that are not companies (this includes some charities).
- VAT divisions.
- VAT groups (the deferral applies to the group registration only and not to any group companies that are not covered by the group registration).
- Public sector entities that are required to provide additional information alongside their VAT return (such as Government departments and NHS Trusts).
- Local authorities and public corporations.
- Traders based overseas.
- Those required to make payments on account.
- Annual accounting scheme users
These businesses will be mandated to use MTD from October 2019. HMRC has sent an individual letter to each deferred business to advise them that their start date is the beginning of the first VAT accounting period starting on or after 1st October 2019 rather than the 1st of April 2019. These letters include formal legal notification of the deferral of the start date, and any business that wishes the deferral to apply must ensure that they receive the letter and should retain it carefully. A deferred business that does not receive the letter should contact the VAT Helpline.
Who’s Not Affected?
Businesses with a taxable turnover less £85,000 shall not fall under the MTD requirements. However, they will still be able to access the HMRC online VAT return.
Working Out Your Taxable Turnover
When working out taxable turnover, you should:
- Include standard rated, reduced rated and zero-rated supplies.
- Exclude outside the scope and exempt supplies.
The £85,000 threshold for complying with the MTD for VAT requirements also applies to non-established taxable persons (NETPs) even though they are required to register once they have a taxable turnover of £1.
The period to be considered when determining whether taxable income exceeds the £85,000 for MTD for VAT purposes is the year to the end of any month (i.e. a rolling 12 months). When the threshold is exceeded for the first time the business must comply with MTD for VAT from the beginning of its next VAT accounting period.
No Change Required
No changes are required for the following:
- VAT rules other than those relating to record keeping and filing.
- The amount of information submitted to HMRC; the VAT return will contain the same nine boxes that it does currently though the regulations do allow for additional information to be submitted on a voluntary basis.
- The current filing and payment deadlines for VAT.
An exemption for the digitally excluded is included in the regulations and mirrors the current exemptions from online filing for VAT. The exemptions cover those that do not use computers for religious reasons and those that are unable to comply because of age, disability or location (or for any other reason).
Existing exemptions from online filing for VAT will be carried over automatically to MTD for VAT. Those that are not currently exempt from VAT online filing may find it difficult to persuade HMRC that the exemption should apply. Difficult cases will arise, particularly where an individual has some basic digital skills such as being able to send emails, but would not be able to cope with accounting software or a spreadsheet. There is no specific age at which the exemption applies; each case will be taken on its merits. Location covers those who cannot obtain access to broadband because of where they’re located. The exemption will not apply to those who could sign up for broadband but have not done so.
HMRC is expected to issue further guidance on applying for exemption. The current process is to phone the VAT helpline or make a written request, but applications for exemption from MTD for VAT cannot be made until further guidance is published and HMRC’s internal processes are in place.
Businesses in insolvency procedures are exempt from the MTD for VAT requirements. The current paper-based processes are expected to continue for both pre and post appointment returns. This exemption covers the following situations:
- When a bankruptcy order or winding-up order or award of sequestration is made or an administrator is appointed in relation to that person.
- When that person is put into administrative receivership.
- When that person, being a corporation, passes a resolution for voluntary winding up.
- When any voluntary arrangement approved in accordance with Part I or VIII of the Insolvency Act 1986, or Part II or Chapter II of Part VIII of the Insolvency (Northern Ireland) Order 1989, comes into force in relation to that person.
- When a deed of arrangement registered in accordance with Chapter I of Part VIII of that Order of 1989 takes effect in relation to that person.
- When that persons estate becomes vested in any other person as that person’s trustee under a trust deed.
What Do I Need To Do?
Voluntarily registered businesses that have not opted into MTD for VAT will need to continue to monitor their turnover to establish when they need to start complying with the MTD for VAT requirements. Businesses that newly register for VAT (compulsorily) will need to consider how they will comply with the MTD for VAT requirements and will have very limited time in which to comply.
Once a business is required to comply with MTD for VAT requirements, the obligations continue, even if the taxable turnover of the business subsequently drops below the VAT threshold. Eventually, MTD for VAT may be extended to all VAT registered business, but this will not happen before April 2020 at the earliest.
Record Keeping Requirements
Businesses and organisations within the umbrella of MTD will have to keep digital records and submit VAT returns via functional compatible software from the start of their first VAT return period beginning on or after 1st April 2019, or 1st October 2019 if they are covered by the 6 month deferral mentioned previously. Annual accounting and special VAT accounting periods will continue to be available.
These companies will be required to maintain their accounting records digitally in accounting software or spreadsheet. Maintaining paper records will no longer meet the legal requirements in tax legislation. These companies will be required to submit their VAT returns to HMRC using a functional compatible software that can access HMRC’s API (Application Program Interfaces) platform.
These requirements do not apply to businesses below the taxable turnover threshold.
Software and Digital Links
Digital records can be maintained in more than one program or software product. The use of spreadsheets, either to record individual transactions or as part of a suite of software and spreadsheets is permitted. An existing spreadsheet alone is not a free way to comply with the MTD for VAT requirements as it will not have the functionality to file the return. Spreadsheets will need to be either API enabled or, more likely, used in combination with a commercial MTD compatible software product or spreadsheet so that data can be sent to and received from HMRC systems.
Where records are maintained in more than one program or product there must be digital links between each of the software products/spreadsheets. Information cannot be transferred manually between products. Digital links have been defined and the following actions included:
- Emailing a spreadsheet containing digital records to tax a agent so that the agent can import the data into their software to carry out a calculation (for instance, a partial exemption calculation).
- Transferring a set of digital records onto a portable device (for example, a pen drive, memory stick, flash drive) and physically giving this to an agent to import that data into their software.
- XML, CSV import and export, and download and upload of files.
- Automated data transfer.
- API transfer.
- Linked cells within or between spreadsheets. The transfer of information by the use of copy and paste or cut and paste does not meet the requirement for a digital link.
For the first year, HMRC will not enforce the requirement to have digital links in place. This is to allow some more time for links between legacy systems to be made digital. During this period manual transfer of data between different systems is permitted but the final transfer of data into the MTD compliant software product from which the return is filed must be digital.
MTD for VAT functional compatible software must be able to:
- Keep records in a digital form.
- Preserve records in a digital form.
- Create a VAT from the digital records.
- Provide HMRC with VAT returns and voluntary information by using the API (application program interface) platform.
- Receive information from HMRC using the API platform. This will include messages about a requirement to file and confirmation of successful filing and will allow HMRC to send ‘nudge’ messages to the business/agent.
MTD for VAT Pilot
The MTD for VAT pilot started in April 2018 and moved to public beta in October 2018. In January 2019 the pilot was opened up to all businesses that are mandated to comply with MTD for VAT from April 2019 and to VAT group registrations. In February 2019 the pilot was further extended to all businesses except:
- Businesses based overseas (i.e. with no UK fixed establishment).
- Public corporations.
- Local authorities.
- Users of VAT giant services.
The starting point for businesses that wish to sign-up for the pilot, is the HMRC guide on Making Tax Digital for VAT. The starting point for agents is the HMRC guide on Making Tax Digital for VAT as an agent: step by step.
Digital Record Keeping Requirements
The requirement to keep digital records does not mean that businesses will have to scan and store invoices and receipts digitally. Business can continue to keep documents in paper form if they prefer but each individual transaction (not summaries) will need to be recorded and stored digitally. HMRC would like to encourage records to be kept as near to real time as possible, but it will still be possible to create the digital records at quarterly intervals, using a bookkeeper or other agent if required, provided the information is entered into a digital record keeping system at that stage.
The regulations require the following records to be kept digitally:-
- The name of the business or organisation.
- The address of the principle place of business.
- The VAT registration number.
- Details of any VAT accounting schemes used.
For supplies made:
- The time of supply.
- The value of supply.
- The rate of VAT charged.
If multiple supplies subject to the same rate of VAT are made at the same time these do not have to be recorded separately. You can record the total value of supplies on each invoice that has the same time of supply and rate of VAT charged.
The corollary applies: if an invoice has supplies at different rates of VAT (e.g. adult’s and children’s shoes) there must be a separate digital record for each rate of VAT charged. You must split the total value of supplies on the invoice and make a separate entry in the digital records for each rate of VAT charged. This is needed to meet the requirement to have a record of outputs value for the period split between standard rate, reduced rate, and zero rates, exempt and outside the scope outputs. There is a relaxation for mixed rate supplies at a single inclusive price (e.g. meal deals).
For supplies received:
- The time of supply.
- The value of the supply including any VAT that is not claimable by the business.
- The amount of input tax to be claimed.
If there is more than one supply on an invoice the business can record the totals from the invoice.
The VAT account is the link – the audit trail – between the business records and the VAT return. The information required to be held in the VAT account must be kept digitally (the regulations refer to this as the “electronic account”), and the information in that electronic account will be used by functional compatible software to calculate and fill in the VAT return.
To show the link between the output tax in the records and the output tax on the return, the business must have a digital record of:
- The output tax it owes on sales.
- The output tax it owes on acquisitions from other EU member states.
- The tax it is required to pay on behalf of its suppliers under the reverse charge procedure.
- The tax that needs to be paid following a correction or error adjustment.
- Any other adjustment required by VAT rules.
To show the link between the input tax in the accounting records and the input tax on the VAT return the business must have a record of:
- The input tax it is entitled to claim from business purchases.
- The input tax allowable on acquisitions from other EU member states.
- The tax that it is entitled to reclaim following a correction or error adjustment.
- Any other necessary adjustment.
Certain records, such as fuel scale charge calculations, partial exemption calculations and capital goods scheme adjustments, are not included in the list of records that must be kept digitally. Such adjustments can be calculated outside the digital records with a journal entry being made for each type of adjustment.
The cash accounting scheme which allows businesses to account for VAT on the basis of payments made and received rather than on invoices continues. Such businesses are, however, still required to record individual supplies made and received and creating digital records from bank statements alone will not satisfy the requirements.
Some software records reverse charge transactions and it is not necessary to have separate entries for the self-supply and purchase. If the software does not record reverse charge transactions it will be necessary to record reverse charge transactions twice, once as a supply made and a second time as a supply received.
Records must be kept for six years (or 10 years if the business uses VATMOSS). Digital records will need to be maintained for six years following de-registration, but may be kept in alternative formats rather than in functional compatible software.
When Does MTD Become Mandatory?
All business with be required to submit tax returns digitally after 1st Apr 2019. However, HMRC has announced a deferral to the start date of 6 months available to some of the more complex businesses. Therefore, deferred businesses will be mandated to use MTD from October 2019.
Businesses that are affected will need to acquire suitable commercial software or appoint an agent to submit returns to HMRC on their behalf.
Food safety is integral to the reputation and viability of the food services industry. For trust to exist that food meets the required safety and quality standards expected by consumers, a thorough traceability strategy must be in place. Traceability ensures that if a food safety issue occurs, the problem can quickly be discovered, isolated and addressed. Traceability information can be used to quickly withdraw unsafe food from the market and avoid escalation.
It is a legal requirement for all food distributors to have effective traceability systems in place to identify the suppliers and customers for each product in their supply chain.
Unfortunately, traceability compliance for many businesses is a cumbersome obligation that eats up staff resources without producing tangible benefits for the business. This is due to overreliance on traditional, paper heavy systems that are inefficient and prone to human error.
This is not only wasteful of your resources, but risks the reputation of your business if a traceability error occurs. Failure to ensure traceability can involve extensive microbiological testing if contaminated food is suspected, and penalties can include the forced shutdown of your organisation in the worst-case scenario.
Food traceability software saves time and reduces the risk of error. Beyond this, an effective traceability system will benefit your business by reducing the downtime needed to resolve product issues, and can protect the reputation of your business in the event of a backlash.
Here are some of the main benefits of investing in a food traceability application:
1) Boosts Consumer Confidence & Enhances Brand Credibility
Today’s public expect an extremely high level of transparency from food services businesses. The average shopper is very aware of potential allergens and additives, and takes an active interest in the quality of ingredients. An accurate traceability application will give consumers confidence in your products, securing a reputation for credibility that will stand you in good stead with your retail partners.
2) Reduces Food Waste
Quickly detecting the source of a food problem reduces your overall recall volume and keeps wastage costs to a minimum. A problem with unclear traceability can result in hundreds of tonnes of products being needlessly recalled and destroyed, a crippling financial hit as well as damaging to your reputation.
3) Increased Efficiency
Food traceability software does more than facilitate damage limitation. It also allows you to understand and streamline your whole food supply chain from start to finish. The practical results are improved productivity, greater opportunities for growth, better communication with suppliers and customers, and a better understanding of the factors that drive market demand.
4) Give Weight to Your Marketing Messages
With a watertight traceability strategy in place you can be confident of your marketing messages and discover new opportunities to promote your products. You can develop your reputation as a source of ethical products, a supporter of local farmers, or a leading advocate of food safety.
5) Reduced Risk of Litigation
In the unfortunate event that your business is involved in a dispute with a supplier, consumer or retail partner, accurate traceability software sets your case on firm legal footing. By tracing the source of a problem many issues can be debunked or resolved before they reach court. This reduced risk is not lost on insurance companies, who may reward well-managed businesses with lower premiums.
The Key to Improved Growth & Profitability Improved food traceability is just one of the benefits of our Prodigy Food Services Software Suite, a modular package that allows you to streamline every aspect of your food supply chain.