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Accounting Information9 Strategies for Writing Accounts Due Procedures
by:
Chris Anderson
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The Cash to Cash Cycle
Part Four of Series
Part One: http://www.bizmanualz.com/articles/01-05-05_inventory_procedures.html/?ART78
Part Two: http://www.bizmanualz.com/articles/01-11-05_accounts_receivable.html/?ART79
Part Three: http://www.bizmanualz.com/articles/01-18-05_Sales_Marketing.html/?ART80
Next Week: Complete Cash to Cash Cycle
The white flag is simply a nose away…toward the Million dollar prize in cash savings for your business…
So far, in Inventory and Accounts Receivable, we've found $250,000 each in cash savings. Then we found another 250K in Sales and Marketing. And so, now, Accounts Due is the final process inside
the Cash to Cash Cycle - and likewise the final $250,000.
The cash cycle is beyond question the single most important process to optimize for any business – from once
you spend money to once
you get money.
Circling the Cash to Cash Cycle
So let’s tie this back to accounts due - the event that pays for the liability incurred by purchasing, which is for inventory required by manufacturing to meet demand. Sales generate this demand that creates the accounts receivables, which is turned into cash. And now we have move full circle and completed the discussion on the cash to cash cycle.
Increasing the Speed of Accounts Due Processes
Your accounts due is a bit several than the else processes we have examined so far. The 1st three processes we looked at depicted processes wherever
the focus was on reducing the size of assets (inventory or accounts receivable) or expenses (marketing) and increasing the speed or cycle time. But in accounts due our focus is on increasing the size of the asset, spell maintaining a solid credit rank - and increasing the speed of the process.
Now let’s look at how to find $250,000 in accounts due savings. If your organization has $500,000 in accounts due each month, then STOP! We can find $250,000 in savings right here. Where, you ask? Increasing liabilities
by 25% wish produce $125,000 in cash plus $125,000 from automating tasks, taking more discounts, and managing the process better.
Service Business Procedures Case Study
An organization with $600,000 in monthly liabilities
required assistance. We examined their liabilities
process to understand and quantify workflow, paper process
and credit issues. Then we designed and enforced
a process to increase their use of liabilities
and discounts, improve their liabilities
cycle efficiency, and tie it to their buying and due cycles. We then reinvested $50,000 back into an Enterprise Resource Planning (ERP) program to automatise several of the processes that weren’t machine-driven
already.
The metrics we developed reduced their buying & liabilities
expenses by 25% and augmented their efficiency from 50% to 75% inside
2 months of implementing the new procedures. With these new processes and reports, the institution now tracks liabilities
cycle efficiency and average days payables, rather than simply bills paid on time or outstanding balance, as the measure of their liabilities
effectiveness. The result: an extra $300,000 in cash plus a 50% increase in process capability (capacity).
But how?
Methods to Design Your News Accounts Due and Accounting Procedures
• Eliminate Paper. The single biggest cost for any buying and liabilities
department is paper, including: purchase orders, purchase order follow-up, small-dollar purchases, delivery following & receipts, and merchandiser payments. Utilizing paperless invoices, Web-based businessperson
self-servicing, centralized merchandiser files, machine-driven
workflows for electronic or imaged invoices (see ERP below), and payment methods, such as business credit cards, Electronic Data Interchange (EDI) and Electronic Funds Remove (EFT), can reduce paper handling price by as more as 90%.
• Integrate ERP Systems. Enterprise Resource Planning (ERP) automates the buying and liabilities
functions, which allows a institution to get more activity done with fewer personnel. Also, electronic invoice matching applications save time in retrieving paperwork. It is calculable
that an ERP system can annually save an organization $300 per million in sales.
• Increase Payment Terms. Hash out payment terms based on receipt of goods or the invoice. This can add one week or more to your terms, which can be 25% of 30 day terms. Use EFT for just-in-time payments to maximize your liabilities
terms and minimizing the impact to your credit.
• Take Payment Discounts. If you are effort 2%/10 net 30 terms, then consider taking it. This means you are offered a 2% discount if you pay inside
10 days, instead of the normal 30 day terms. This translates into an 18% return on your capital, and for many an organizations this is a nice return on your investment.
• Review Purchases. Buying is a consecutive process that requires consecutive review. Consider: transportation charges, fast fees, odd lot penalties, new pricing, new products, consolidating vendors, new vendors or buying groups, payment terms, and more. Communicate with your suppliers to improve the process. And review and monitor everything to account for changes in your environment.
• Communicate with Suppliers. Communicate with your suppliers to improve the process. Ask suppliers to submit their invoices electronically. This wish save you time, resources and losses due to waste.
• Eliminate Disputes. Disputes with your suppliers are typically the result of a problem with your purchasing/receiving process. Once
disputes occur, review your buying procedures to ensure that they are producing the correct metrics and that you are not forced to pay for your mistakes.
• Reduce Errors. Overpayments, payments ready-made to the wrong vendors, fake invoices, or even as late payments represent a common problem for payables. Increasing your focus on error control, on
with written procedures and audits, can reduce these errors considerably.
• Train personnel. Provide your accounts due staff with regular formal training. This wish arm them with better psychological feature
of frauds, negotiating skills, and an understanding of the social science
of liabilities
– which wish result in improved effectiveness.
Accounting Policies and Procedures for Cash in the Bank
In the past few weeks, we have showed you four parts of your business enterprise statements that wish each contribute $250,000 in cash savings. The last hurdle was Accounts Payable, and we sailed through it. And now we have crossed our final goal: $1,000,000!
Time was - and is - the key. All you have to do is own it. And, remember, next week we wish put together each of the four elements of the cash to cash cycle, and look at how it affects the working capital of your business.
Just about the author:
Chris Anderson is presently
the managing director of Bizmanualz, Inc. and co-author of policies and procedures manuals, producing the layout, process design and implementation to increase performance.
To discover how to increase your business performance, visit: http://www.bizmanualz.com?src=../../ART81
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