Thursday, 17 November 2011

Strategies For Writing Accounting Procedures For Payment

The white flag is just a nose away ... against the cost of millions of dollars in cash savings for your business ...

So far in inventory and receivables, we found $ 250 000 each in cash savings. So we found another 250K in sales and marketing. And so now, Accounts Payable is the final process in the cycle of cash - and the final $ 250,000.

Money supply, is without doubt the most important process to optimize every business - from when to spend money when you get the money.

Go all the cash to cash cycle

So we will link it back to creditors - the event which pays for obligations incurred by the purchase, which is necessary for the calculation of production to meet demand. Sales generate this demand that creates credits which are converted into cash. And now we come full circle and completed the discussion of the cash cycle.

Increase the speed of process accounts payable

Your accounts payable is a bit 'different than the other processes we have examined so far. The first three processes we looked at represented processes, focusing on reducing the assets (inventory or a receivable) or expenses (marketing) and increasing the speed or cycle time. But the attention to the increase in trade payables of the property, while maintaining a solid credit rating - and increases the speed of the process.

Now look at how to find $ 250 000 in savings to pay. If your organization has $ 500 000 in accounts payable each month, STOP! We can find $ 250 000 in savings from here. Where, you ask? The increase in debt of 25% is produced 125 000 dollars in cash and $ 125 000 for automating tasks, taking more discounts and better manage the process.

Service Business Procedures Case Study

An organization with $ 600,000 in monthly payables needed help. We examined their payables process to understand and quantify the flow of paper processing and credit issues. We have designed and implemented a process to increase their use of payables and discounts, improve their payables cycle efficiency and tie their purchasing power and the cycles of debt. We then reinvested $ 50,000 back in an Enterprise Resource Planning (ERP) program to automate some processes are not automated already.

The measures that we developed reduced their purchases and to pay 25% and increased their efficiency from 50% to 75% within 2 months after the implementation of new procedures. With these new processes and reports, the company is now following cycle efficiency of accounts payable and average days to pay, rather than just bills paid on time or outstanding balance, as a measure of their effectiveness debts. The result: an additional $ 300,000 in cash and a 50% increase in process capability (capacity).

But, how?

Methods for designing your New Accounts payable and accounting procedures

• Remove the paper. The single biggest cost for any purchase and payables department is paper, including: purchase orders, monitoring purchase small dollar purchases, monitoring and delivery receipts and vendor payments. Using paperless invoices, Web-based provider of self-service, centralized vendor files, automated workflows for electronic invoices or times (see ERP below), and methods of payment such as credit card company, Electronic Data Interchange ( EDI) and electronic funds transfer (EFT), can reduce paper handling costs by up to 90%.

• Integrate ERP systems. Enterprise Resource Planning (ERP) automates the functions of purchasing and payables, which allows a company to do more with less staff. As electronic invoice matching applications save time for the documents. It is estimated that an ERP system can annually save an organization $ 300 million sales.

• Increased payment terms. Negotiate payment terms based on receipt of goods or invoice. This can add a week or more of his words, which can be 25% of the 30 days. The use of EFT for payment just in time to maximize your debt and the terms of minimizing the impact on your credit.

• Make a payment discounts. If you get a 2% / 10 net 30 terms, then consider. This means that it is offering a 2% discount if you pay within 10 days, 30 days under normal conditions. This represents a return of 18% of the capital, and many organizations, this is a good return on investment.

• Review of procurement. The purchase is an ongoing process that requires continuous review. Please note: transportation costs, accelerated rates, penalty miss you very much, prices, new products, consolidating vendors, new vendors or buying groups, payment terms, and much more. Communicate with suppliers to improve the process. And review and monitor everything to account for changes in their environment.

• Communicate with suppliers. Communicate with suppliers to improve the process. Ask your suppliers to submit invoices electronically. This saves time, resources, and losses in the waste.

• Eliminate differences. Disputes with suppliers are usually the result of a problem with your purchase / receive process. Where they occur, review your purchasing procedures to ensure they produce the correct metrics and that you do not have to pay for their mistakes.

• reduce errors. More payments, payments to vendors bad, false invoices, or even late payments represent a common problem for payables. Increasing your focus on error control, with written procedures and audits, can greatly reduce these errors.

• Train staff. Provide your accounts payable to the regular academic. This will arm them with better knowledge of frauds, negotiating skills and understanding of the economics of debt - which will result in greater efficiency.

Accounting policies and procedures of the money in the bank

In the last week we showed you four parts of your records, will each contribute $ 250 000 in cash savings. The last hurdle was Accounts payable and we sailed through it. And now, we crossed our final goal: $ 1,000,000!

Time was - and remains - the key. All you have to do is clean. And remember, next week we'll put together the four elements of the funding for the cash cycle and see how it affects the working capital of your company.