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Add You - Top 7 Strategies for Writing Accounting Procedures
So I was sitting in my home office looking through my bookshelf that contains my library of marketing books and courses. I started paging through one of the manuals that came with a course I bought over a year ago.While paging through one of the chapters I stumbled across a statement that not so long ago got me through some tough times while building my success.That statement was “fall forward fast”!Think about that statement for a minute…What does that mean to you?I am going to get into what that statement means in just a minute but first I want to set you up for the answer.When starting a business from home or online,
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 perfo
Mark Victor Hansen, co-author with Jack Canfield of Chicken Soup for the Soul and other Chicken Soup books, says, "Everyone has to have a big list of who they’re going to call on."The product or service you are selling will determine where you get your list of prospects. For example, if you are selling ear identification tags for cattle, you’d start with a list of members in the Cattleman’s Association. If you were selling tongue depressors, you would start with a list of doctors, clinics and hospitals.If you are in sales or trying to find clients, sooner or later you are going to have to try cold calling. To someone who has never done it, cold call
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 perfor
Every session of teaching is compared to an instance of public speaking. As with the audience at public speaking event, the students in a classroom session want to follow the content with ease and comfort, learn something new and carry home the happiness of having acquired a new insight. They characteristically abhor the teacher and his session if the required care is not taken to facilitate them to follow and imbibe the contents, no matter how spectacular the contents of the lesson are. Students want to learn without being smothered with confusion or unrelated content. They, by nature, expect the flow of content to be within their stride. They want the flow to b
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 perfo
Lots of people in network marketing or even sales period don't know this little known fact.Curious what it could be?Did you know you have two ears and one mouth for a reason? Ponder that thought for a moment and you'll begin to realize one of the few secrets to building report, making more sales and building a larger team.So many people rather than asking questions just use the shot gun effect when talking to prospects. saying anything and everything to get them to look at their opportunity. A gun to the face doesn't exactly get people happy about working with you. Remember that the next time you find yourself talking and talking and talking
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 perfo
To start a small business you should consider the following factors: Planning-Stay organized. The more you stay organized, the easiest it will be to respond to customer request in a timely fashion.Business plan-This is very important if you are going to request a loan to a bank or institution and at the same time it will give you a good starting point for your small business. This is a great tool to help you kick start your business.Initial Investment-A good rule of thumb is to include in your budget a six month operating expenses. What this means? That you should allocate this money as part of your initial investment to have your small business co
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 perfo
Flash chart, flash map, flash graph may be mistaken for flashy visual aids. It is true that many data visualization tools are flashy and consequently overwhelming and counterproductive, but the market has produced data visualization capable of simplicity and speed-thus “flash” does not stand for flashy; it stands for information in a flash.Data visualization has been adopted as normal practice by businesses, warehouses, airlines, chambers of commerce, teachers, students, parents, and even children. Each of these groups somehow utilizes the information available in a data visualization flash chart, flash map, or flash graph to create an interactive map of i
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.
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