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Top 7 Strategies for Writing Accounting Procedures

Author: Chris Anderson

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: Bizmanualz, Inc.

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Accounting

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Top 5 Services Your Company�s Accounting Department Should Outsource

Author: Vinodh Pushparaj

Accounting is one area which every company has to maintain but mostly not part of their core business. It is also one of the areas that keep changing every year and the company has to aggressively keep up with the changes in the tax code. This includes managing your books till you finish up with paying taxes. For a company to survive in an environment where mistakes are costly and dependent on how well they can play the accounting game correctly, they should have an outstanding accounting department. This could either be in-house or completely outsourced to some good service providers.

Accounting is a critical component of your business and care should be taken to employ the best and the bright. These accountants should be ahead of every tax and book keeping game. They should stay abreast with every tax code changes. More so over they should be capable of finding ways to save more for the company. But having an in-house team for this is often very costly given the price of publications to subscribe and the time it takes to go through complicated laws. The best would be to outsource this task and have a limited in-house staff to oversee the operation. This is one area where a separate expert entity makes a lot more sense and you can rest assured that the team is keeping up with the changes and saving you money and help you run the core business without distractions.

Here is the top 5 list of accounting areas that you should outsource to the experts:

1. Book Keeping: this involves maintaining your sales ledgers, purchase ledgers and cash books.

2. Payroll: This is a lot complex than you think, choosing the right software and constantly keeping up with the tax codes is by itself a very complex task. In this age the base salary is just one component, the majority is based on performance and achievements. These factors are highly volatile, and add a different equation to payroll processing. Outsource this first if you have more than 20 employees.

3. VAT: Value added tax is one of the very complex tax regimes which every company should seek advice with professionals. The customs and excise is a very task intensive area and having in-house experts for small companies who do a lot of imports and exports is a costly misuse of scarce resources. You should find out the folks who can keep up with the complex tax changes and who can ensure the returns you file are accurate without any overpayments or underpayments. The overpayments are one time loss, but underpayments will come back to haunt you.

4. Financial Accounts: The financial accounts should be maintained and shown at very strict time limits. This is usually a race against time. If you have an in-house team, they may perform this well in normal situations. But sometimes there may be some audits where the time to resolve issues will be a big pressure point and your in-house staff cannot just take it. It is better that a good service provider manages this area for you.

5. Company formation and corporation law: This is one service which is wildly popular for its outsourcing ability. You can easily get the services of a good company to take care of the company formation and registration aspects. You need someone to talk to the tax authorities on your behalf. They should also be very well versed in the particular industry segment your company is in. This ensures the tax opportunities and relief available for your company can be fully utilized and proper structure could be employed.

There are a few more that could be outsourced but these are the major areas you may want to evaluate in your next board or company meeting.

If you need an Accountant in Essex you may want to visit the resource filled website auxesiaonline.co.uk. These folks have some good fee structures on an hourly, fixed or percentage basis. Get educated with a small consulting on how to outsource accountingwith these folks before you begin the next cost-saving company meeting that you want to hold.

Author is a Freelancer and writes content for many good websites like Aplora Web Solutions. You can reuse the content but you should reuse in it�s entirety with all links active.

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