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Tally Accounting Software. 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! They have found it again.
Why? Because if they focus on reducing your average days collection by 50%, then your accounts receivable balance will fall to $250,000 & the result will be an extra $250,000 in your bank account. & like that, we’re halfway to our $1,000,000 objective.
Reducing Average Days Collection
So now, let’s see how this actually works in a real-life business scenario.
Accounting Procedures Service Business Example
The metrics they developed reduced their “over 60” accounts receivables by 85% & their overall A/R balance by 50% within 90 days of implementing the new procedures. With these new processes & reports, the company now tracks Average Days Collection & past due than Days Sales Outstanding (DSO) as the measure of their collection effectiveness.
A service organization with $700,000 in average A/R balances needed assistance. So they examined their A/R function to understand & quantify the workflow & workload issues. Then they designed & implemented a method to improve the A/R performance.
Methods to Design the New Accounting Method
The result: an extra $350,000 in money. &, again, they explicitly see the crucial role of time & how an increase in velocity & discipline directly yields an increase in efficiency & money savings. So how can you use time to your advantage?
Tighten credit policyowner. Examine credit method for slippage. Do you have a credit approval method? Do you perform credit checks? What standards are used to extend credit?
Decrease collection cycle. Examine customer accounts that go beyond your terms. Do not wait until four times the net terms to take action.
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 & most businesses will take those terms.
Shorten the invoice method. Bill your customers immediately. This is a huge three. Plenty of service organizations wait until the finish of the month to tally billable hours & decide customer charges. Do not wait until the finish 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 three (e.g. QuickBooks accounting program contains this feature).
Reduce billing errors. Most customers delay payments because of invoice errors. Customers won’t recognize the invoice until it is corrected & may not even notify you, the seller, of the error until you call for collection. Again, avoiding this delay in error & time will amount to money 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 over On-The-Job (OJT) training for the clerk. Then the CFO thinks that they or he (the CFO) is 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 training to manage such a significant amount?
Maximizing the Accounting Method. With the Accounts Receivable department you ought to use each element of the method to gain the most benefit for your business. & with time-saving procedures set in place, you will let your efficiency work for you.
After all, it only takes a 6% change in A/R in three month to equal the A/R clerk’s entire annual salary. Isn’t the A/R savings worth a tiny extra time in training? Find more information about Accounting Software For Small Business here.
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Tags: Tally Accounting Software
Posted in Accounting · January 14th, 2010 · Comments (0)