top 7 strategies for writing accounting procedures
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Allotment Two of Cash to Cash Cycle Series

Allotment One:

Abutting Week: Sales

We’ve already activate $250,000…so let’s acquisition another $250,000…

Laying the Foundation

Last week, we raised the catechism: what would your bag accomplish with $1,000,000? To lay the foundation we introduced inventory as the aboriginal of four areas that will advance toward our million dollar ambition. And you saying exactly how to accomplish the aboriginal $250,000 in cash chief by avoiding delays with an access in velocity, as able-bodied as an access in discipline and competency. But how exactly? With age – as you saying with inventory and as you’ll beam this week.

Tackling Accounting Procedures

Let’s abide that crucial topic of age with another above source on your balance sheet – specifically, accounts receivable (A/R). If you accept $500,000 or added in accounts receivable then STOP! We accept activate it again.

Reducing Average Days Collection

Why? As if we bull's eye on reducing your average days collection by 50%, then your accounts receivable balance will fall to $250,000 and the aftereffect will be an extra $250,000 in your bank statement. And aloof according to that, we’re almost to our $1,000,000 ambition.

So any more, let’s beam how this actually works in a absolute-action bag plot.

Accounting Procedures Service Bag Archetype

A service alignment with $700,000 in average A/R balances needed assistance. So we examined their A/R function to accept and quantify the workflow and workload issues. Then we designed and implemented a action to advance the A/R performance.

The metrics we developed reduced their “over 60” accounts receivables by 85% and their overall A/R balance by 50% within 90 days of implementing the advanced procedures. With these advanced processes and reports, the company any more tracks Average Days Collection and former due rather than aloof Days Sales A-1 (DSO) as the measure of their collection effectiveness.

The aftereffect: an extra $350,000 in cash. And, again, we explicitly beam the crucial role of age and how an access in velocity and discipline directly yields an access in efficiency and cash chief. So how can you statement age to your advantage?

Methods to Architecture the Advanced Accounting Action

Decrease collection cycle. Examine customer accounts that action beyond your terms. Accomplish not wait until twice the grasp terms to booty action.

Tighten credit policy. Examine credit action for slippage. Accomplish you accept a credit approval action? Accomplish you perform credit checks? What standards are used to extend credit?

Lessen credit terms. Chicken feed the credit terms you action your customers. If you action terms of grasp 45, lessen it to grasp 30. You might action a discount of 1% if paid within 10 days else grasp due in 30 days. This is equivalent to 18 % annual absorption and most businesses will booty those terms.

Shorten the invoice action. Bill your customers immediately. This is a ample one. Abounding service organizations wait until the borderline of the month to count billable hours and actuate customer charges. Accomplish not wait until the borderline of the month. This could lessen your day’s receivable by as much as 15 days adapted there. Email or fax your invoices to save another day or two (e.g. QuickBooks accounting software contains this aspect).

Lessen billing errors. Most customers delay payments as of invoice errors. Customers won’t apperceive the invoice until it is corrected and may not even inform you, the vendor, of the error until you call for collection. Again, avoiding this delay in error and age will amount to cash chief.

Train Accounts Receivables personnel. Accomplish sure that all personnel involved are training to accept the performance metrics for their jobs. For archetype, a company will administer $500,000 in monthly A/R balances (that’s $6 Million a year!) using an A/R clerk who makes $30,000. But then the supervisor uses annihilation added than On-The-Action (OJT) training for the clerk. Then the CFO thinks that he or she (the CFO) is really managing the almighty dollar. But, in absoluteness, that’s not the position; the clerk is managing the almighty dollar day-to-day. So shouldn’t the A/R clerk accept enough training to administer such a cogent amount? After all, it alone takes a 6% chicken feed in A/R in one month to equal the A/R clerk’s entire annual pay. Isn’t the A/R chief worth a babyish extra age in training?

Maximize the Accounting Action. With the Accounts Receivable department you should statement each element of the action to accretion the most statement for your bag. And with age-saving procedures set in abode, you will let your efficiency assignment for you.

Grabbing Your Policy Ambition

With able-bodied-defined processes and procedures in abode, you will access efficiency by reducing your Average Days Collection. And of course a lessening in Average Days Collection means your Accounts Receivable balance will again fall, creating added cash in cash on hand. And aloof according to that we’re almost to our $1,000,000 ambition. All you accept to accomplish is grab it.

Abutting week, we will attending at finding still another $250,000 in the Sales function – which will accord us $750,000 toward our ambition of 1 Million in cash chief. So, again, not alone accomplish you aim to reap the rewards of extra chief to your bottom line, but again beam added cash in the bank – $1,000,000 cash to be exact.

About the author:
Chris Anderson is currently the managing director of Bizmanualz, Inc. and co-author of policies and procedures manuals, producing the arrangement, action architecture and implementation to access performance.
To apprentice how to access your bag performance, appointment:

Originall posted March 29, 2012