Top 7 Strategies for Writing Accounting Procedures

Part Two of Cash to Cash Cycle Series

Next: Sales

We've already found $250,000?so let's find another $250,000?

Laying the Foundation

Last week, we raised the question: what would your business do with $1,000,000? To lay the foundation we introduced inventory as the first of four areas that will lead toward our million dollar goal. And you saw exactly how to achieve the first $250,000 in cash savings by avoiding delays with an increase in velocity, as well as an increase in discipline and competency. But how exactly? With time - as you saw with inventory and as you'll see this week.

Tackling Accounting Procedures

Let's continue that crucial theme of time with another major source on your balance sheet - specifically, accounts receivable (A/R). If you have $500,000 or more in accounts receivable then STOP! We have found it again.

Reducing Average Days Collection

Why? Because if we focus on reducing your average days collection by 50%, then your accounts receivable balance will fall to $250,000 and the result will be an extra $250,000 in your bank account. And just like that, we're halfway to our $1,000,000 goal.

So now, let's see how this actually works in a real-life business scenario.

Accounting Procedures Service Business Example

A service organization with $700,000 in average A/R balances needed assistance. So we examined their A/R function to understand and quantify the workflow and workload issues. Then we designed and implemented a process to improve 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 new procedures. With these new processes and reports, the company now tracks Average Days Collection and past due rather than just Days Sales Outstanding (DSO) as the measure of their collection effectiveness.

The result: an extra $350,000 in cash. And, again, we explicitly see the crucial role of time and how an increase in velocity and discipline directly yields an increase in efficiency and cash savings. So how can you use time to your advantage?

Methods to Design the New Accounting Process

Decrease collection cycle. Examine customer accounts that go beyond your terms. Do not wait until twice the net terms to take action.

Tighten credit policy. Examine credit process for slippage. Do you have a credit approval process? Do you perform credit checks? What standards are used to extend credit?

Reduce credit terms. Change the credit terms you offer your customers. If you offer terms of net 45, reduce it to net 30. You might offer a discount of 1% if paid within 10 days else net due in 30 days. This is equivalent to 18 % annual interest and most businesses will take those terms.

Shorten the invoice process. Bill your customers immediately. This is a big one. Many service organizations wait until the end of the month to tally billable hours and determine customer charges. Do not wait until the end of the month. This could reduce your day's receivable by as much as 15 days right there. Email or fax your invoices to save another day or two (e.g. QuickBooks accounting software contains this feature).

Reduce billing errors. Most customers delay payments because of invoice errors. Customers won't recognize the invoice until it is corrected and may not even notify you, the vendor, of the error until you call for collection. Again, avoiding this delay in error and time will amount to cash savings.

Train Accounts Receivables personnel. Make sure that all personnel involved are training to understand the performance metrics for their jobs. For example, a company will manage $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 nothing more than On-The-Job (OJT) training for the clerk. Then the CFO thinks that he or she (the CFO) is really managing the money. But, in reality, that's not the case; the clerk is managing the money day-to-day. So shouldn't the A/R clerk receive enough training to manage such a significant amount?

After all, it only takes a 6% change in A/R in one month to equal the A/R clerk's entire annual salary. Isn't the A/R savings worth a little extra time in training?

Maximizing the Accounting Process. With the Accounts Receivable department you should use each element of the process to gain the most benefit for your business. And with time-saving procedures set in place, you will let your efficiency work for you.

Grabbing Your Policy Goal

With well-defined processes and procedures in place, you will increase efficiency by reducing your Average Days Collection. And of course a reduction in Average Days Collection means your Accounts Receivable balance will also fall, creating more cash on hand. And just like that we're halfway to our $1,000,000 goal. All you have to do is grab it.

Next week, we will look at finding still another $250,000 in the Sales function - which will give us $750,000 toward our goal of $1 million in cash savings. So, again, not only do you aim to reap the rewards of extra savings to your bottom line, but also see more cash in the bank - $1,000,000 cash to be exact.

Chris Anderson is currently 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 learn how to increase your business performance, visit: www.bizmanualz.com/?src=ART79">Bizmanualz, Inc.

RELATED ARTICLES

---

Management, Balance & Time - 10 Tips for Managing Overwhelm in your Business
How many of us have been in a position where we have more to do than can realistically fit into one day, or week. So we spend all of our time feeling rushed, being rushed, and wondering how on earth we are going to manage.

---

The Top Ten Reasons to Hire a Coach
1. You have a big goal and you want someone to support you.

---

Top Ten Ways to Manage Interruptions
So many people I worked with said they got more work done at home than in the office. That was because there were so many interruptions in the office.

---

Top 7 Business Tips For Small Business Starters For Online Business
1.) Brainstorming for an idea - You must select what interests you in any field and put together 5 to 7 possible ideas that seem viable as a source of income.

---

Business Profitability - 10 Ways To Boost
10 Ways to Boost your ProfitabilitySo many business owners work hard - really hard - just to break even or keep afloat. Each one of us deserves reward for our efforts, whether that be financial or personal.

---

How to Counsel Your Non-Performing Team Members - 10 Tips
Counselling non-performing team members is a tough part of any managers role. This article is full of tips to help you perform this difficult role.

---

International Shipping/Freight for Dummies
There are lots of benefits for some businesses to import or export goods. Manufacturers and distributors can order directly from the overseas manufacturer and save money on their purchases.

---

How To Move Your Business Online in 7 Steps
So you have set up your company, fairly established and generating some sort of revenue. Why should you take the most important step of starting online?The online audience is massive - it's an information resource used by millions worldwide and continues to grow.

---

Top 10 Items For A 21st Century Toolbox!
Skilled workers of every age have prized their tools. I recently visited a Museum of Natural History and was amazed at the craftsmanship and precision of the sextants and chronometers that allowed explorers to map our world in the 18th and 19th centuries.

---

The Hidden Power Of Understanding: A Secret To Building Massive Momentum In Your Business
You're busy with your business today, aren't you?You're pushing your mind and body to the limit just about everyday to handle all the activities that need to be done. But something's missing.

---

Ten Tips for Working at Home
1. Maintain regular working hours and stick to them.

---

Top Seven Questions for Starting Projects More Effectively
We all are project managers. Some of us manage projects like vacations or reunions, while others run implementations of new software systems, consolidation divisions of companies, launch new products, or build buildings.

---

The Top 7 Marketing Tips You Dont Want To Overlook
1. Combine Emotion and LogicConsumers buy because the want to experience the benefits of the product or service you have to offer.

---

Advice for New Coaches: 10 Ways to Attract Your First Paying Client and Receive Endless Referrals
Many new coaches struggle to attract their first client. Often, these coaches are so desperate to prove themselves, they'll sacrifice their financial health to coach their first few clients for free.

---

11 Things Small Business Owners Can Learn From Star Wars
1. Great Things Take Time - Three years passed between the release of each movie in the two trilogies, and a lot of work went in to them.

---

Ten Tips to Build a Culture of Inspirational Leadership
Leadership, leadership development and leadership training are "Hot" issues in today's business world. A recent Internet search uncovered over 44 million hits on leadership, over 20 million hits on leadership development and 15.

---

How To Take Daily Big Rock Actions To Jumpstart Your Business Into Massive Momentum
Do you know exactly what actions you need to do today to be on track to reaching your big, long-term goals?Do you know which actions should be done first to make today a success?If not, don't worry about it right now. By the end of this article, you will have the tools and techniques you need to answer a confident YES to both these questions.

---

Ten Ways to Strengthen Your Reading Habit
Most people wish they read more.  It is an activity that is both fun and enlightening.

---

Increase Business Profits - Ten Ways
How do you increase business profits? Answer the following questions carefully, and you'll have a good start.1.

---

The Top Ten Ways to Attract Buyers, Not Just Visitors to your Web Site
Have you put a lot of effort, time, and money into your site and are frustrated with low sales? If you are like many professionals out there, you know your subject; you are excellent at your craft. You have a great service and maybe a great product to sell.