Laying the foundations
Last week we posed the question: What to do business with $ 1,000,000? To lay the foundation presented the inventory as the first of the four areas that will lead toward our goal of one million dollars. And you saw exactly how to get the first $ 250,000 in cash savings by avoiding delays with an increase in speed and greater discipline and competition. But how exactly? Over time - as you saw with inventory and as will be seen this week.
Manipulation of accounting procedures
Continue with this crucial issue 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 found.
Average days collection near
Why? Because if we focus on reducing your average days collection by 50%, then the accounts receivable balance is reduced to $ 250 000 and the result will be an additional $ 250,000 in your bank account. And so we are halfway to our goal of $ 1,000,000.
So now we'll see how it actually works in a business scenario in real life.
Example of accounting procedures Business Service
A service organization with an average of $ 700 000, A / R balances needed assistance. We therefore examined their function A / R to understand and quantify the flows and the problems of workload. We have designed and implemented a process to improve performance / R.
Meters, we developed reduced their "over 60" and balance 85% Loans General / R of 50% within 90 days of the implementation of new procedures. These new processes and relationships, the company tracks the average number of hours collection and arrears, and not just Days Sales Outstanding (DSO), as measured by the collection efficiency.
The result: an additional $ 350,000 in cash. And, again, explicitly see the crucial role of time and how to increase the speed and discipline leads us directly by increasing efficiency and cash flow. So how can you use time to your advantage?
Design methods new accounting process
Reduce collection cycle. Examine customer accounts that go beyond words. Do not wait until the net twice in action.
The policy of the credit crunch. Examine credit process for slippage. Do you have a credit approval process? Do you perform credit checks? What are the standards used to extend credit?
Reduce credit conditions. Change the credit terms you offer your customers. If you offer terms of net 45, reduce it to net 30th You can offer a 1% discount if paid within 10 days else net due in 30 days. This corresponds to an annual interest rate of 18%, and most companies are taking these concepts.
Shorten the billing process. Bill your customers at a time. This is great. Many service organizations wait until the end of the month to coincide billable hours and determine customer charges. Do not wait until the end of the month. This can reduce your day to receive as much as 15 days ago return. E-mail or fax your invoices to save a day or two (eg QuickBooks accounting software contains this feature).
Reduce billing errors. Most customers delay payments due to billing errors. Customers do not recognize the invoice until fixed and can not even say, the seller of the error until you call for pickup. Again, to avoid this delay in error and time is the amount of cash savings.
Train staff claims. Ensure that all personnel involved training to understand the performance metrics for their jobs. For example, a firm handling $ 500,000 on sale A / R per month ($ 6 million a year!) Use an A / R clerk who makes $ 30 000. But then the supervisor uses nothing more than over-the-job training (OJT) training of the clerk. Then the CFO thinks that he or she (the CFO) really controls the money. But in reality this is not the case, the Clerk manages the money on a daily basis. So should not clerk / R are adequately trained to handle such a large quantity? After all, it takes only 6% change in A / R in one month to respond to a committed total salary / R year. Is not A / R savings worth a little time in training?
Optimize the accounting process. With Accounts Receivable, you must use every part of the process to achieve the most benefits for your business. And with time-saving procedures in place, you can leave your work effectively for you.
Seizing Your policy objectives
With a well-defined processes and procedures, you can increase efficiency by reducing the average collection days. And, of course, reduces the average number of accounts receivables collection means that the scale of the falls, which increases the money in cash. And so we are halfway through our $ 1,000,000 goal. You just need to grab it.