August - 1999 - issue > Cover

Endings bring special significance to bear on business-oriented IT systems. The end of the week is often payday, especially for hourly workers; thus, it’s likely to be the day that companies run the payroll system. Similarly, many companies pay their bills once a week; Friday is often the day the accounts payable system is run. Since Dec. 31 is a Friday this year, it may be necessary to run the end-of-month accounting systems to post appropriate entries in the various journals and ledgers.
And since it’s the end of the business year, many organizations will be embarking on a complex set of year-end "closing the books" activities. In years past, this traditionally began on New Year’s Eve or New Year’s Day, and it often required several days until the computer systems produced results that satisfied the CFO and auditors.

Lots of other transactions have a natural ending on Dec. 31. Sales commissions are computed based on sales that are closed, or invoices that are paid, before the end of the year. Accrued vacation days for employees are closed out before the new year and reset to zero. Estimated tax payments are sent to the IRS, and IRA/Keogh/401(k) accounts must be opened and established by the end of the year. Lots of money changes hands; some accounts are debited, while many others are credited.

Chaos Within Order
All of this requires more processing, more systems, more reconciliation of accounts — all during a period when we may be suffering a variety of Y2K glitches, both within the organization and with the external infrastructure (for example, utilities) and the external supply chain. In cases where reports, statements and reconciliations are not due until the end of January (for example, W-2 and 1099 statements), the processing can be done during the first week of January. Delaying this procedure will afford companies time to recover from non-fatal Y2K disruptions that occur in the first day or two of January. But in other cases, money has to change hands. Even if only virtually or electronically, as in ATM transactions or payroll deposits, monies have to be removed from one account and deposited into another account by the end of the working day on Dec. 31, because those monies may be accessed on Jan. 1, 2000. In some cases, the transactions are "physical"— for example, some workers may expect their paycheck in cash by the close of business on Dec. 31, 1999.

New Year on December 24
As part of your contingency planning, here’s some advice: look for opportunities to carry out these end-of-week, end-of-month, and end-of-year activities before Dec. 31, 1999. Consider running year-end financial systems a week early. Run the payroll system a few days earlier; give employees a double paycheck two weeks before the end of the year. Offer your customers a 2 percent discount for early payment of invoices, so you can get the cash in the bank before Dec. 31, and thus avoid being a living example of the cliche: "The check is in the mail, but I hear the Post Office is non-compliant." Tell sales representatives that 1999 commissions will be based on sales booked, or shipped, or paid, before Dec. 24; that will motivate them to move up their sales activities accordingly. For statements, reports, products, or other items that would be shipped during the first week of January, ship them during the last week of December.

Similarly, if you are planning to place orders for goods and services during the first week of January, place them in December instead. Tell employees that if they want to open a 401(k) retirement account, the deadline for doing so will be Dec. 24 rather than Dec. 31. If you have financial contracts or agreements with a year-end closing date, consider negotiating an earlier closing — chances are that the other party in the contractual relationship will be amenable to such an agreement. If necessary, an organization could even decide to legally change its fiscal year to end on Nov. 30, rather than Dec. 31.

Risky Business
There are costs and risks associated with these activities, of course — and it requires a business judgment from senior management before any of these strategies can be planned and implemented. For example, consider a company with $100 million of accounts receivable: A 2-percent early-payment discount could cost the company $2 million. Even if only half the customers decide to take advantage of the offer, it’s still a million-dollar gamble, which is not something that should be done casually. In a more extreme situation, some businesses might decide that it’s too risky to open new accounts or to process certain kinds of orders during the last few business days of the year, in which case they run the risk of losing potential customers.

An organization that is utterly convinced that its own computer systems are compliant and that it has planned for all of the obvious "supply-chain" risks might decide to do just the opposite of what I’ve described above. The business day typically ends at 5 p.m., but aggressive businesses might decide to stay open, conducting business right up until the stroke of midnight. Among other things, such a strategy is likely to help persuade nervous customers that the organization really is compliant.

Millions of individuals and small businesses may decide to pursue their own "early bird" strategies to ensure that deals are consummated, accounts are closed, and bills are paid a week or two earlier than normal. The last two weeks of the year are busy enough already, with last-minute Christmas shopping, frantic post-Christmas sales, and the usual last-minute financial transactions. This year, it could take place a week or two earlier; indeed, it’s not implausible to imagine both businesses and individuals wrapping up all of their significant activity by Christmas Eve, and then spending the last week of the millennium in a quiet, nervous calm, waiting for the clock to strike midnight on New Year’s Eve.