9 strategies for writing debt procedures
So far, in stock and receivables, we have found $ 250,000 each in the savings in cash. Then we found another 250 thousand in sales and marketing. So, now, account debt is the final process in the cash cycle to cash - and also $ 250,000 late.
The cash cycle is undoubtedly the most important process to optimize any business - from the moment you spend money when you get money.
Circle cash into the cash cycle
So let's tie this back to the business debt - an event that pays the obligation issued by the purchase, namely for inventory needed by manufacturing to meet demand. Sales produce this request that creates trade receivables, which turn into cash. And now we have come a full circle and finish the discussion about cash for the cash cycle.
Increase the speed of the trade debt process
Your account debt is slightly different from the other process we have examined so far. The first three processes we see the process represented where the focus reduces the size of the asset (inventory or receivables) or costs (marketing) and increases the speed or time of the cycle. But in the business debt, our focus is to increase the size of assets, while maintaining a solid credit rating - and increasing process speed.
Now let's see how to find $ 250,000 in debt savings. If your organization has $ 500,000 paid every month, then stop! We can find $ 250,000 savings here. Where, you ask? Increasing debt by 25% will generate $ 125,000 in cash plus $ 125,000 from automatic tasks, taking more discounts, and managing the process better.
Case Study of Business Services Procedures
Organizations with $ 600,000 in monthly debt need help. We examine their debt process to understand and measure workflow, paper processing and credit problems. Then we design and implement the process to increase the use of debt and discounts, increase the efficiency of their debt cycle, and bind it to their purchase cycle and receivables. We then reinvest $ 50,000 back to the company resource planning program (ERP) to automate several processes that have not been automatically.
The metrics we have developed reduce their purchase & debt costs by 25% and increase their efficiency from 50% to 75% within 2 months of implementing a new procedure. With this new process and report, the company is now tracking the efficiency of the debt cycle and the average day debt, rather than just a timely bill paid or outstanding balance, as the effectiveness of their debt effectiveness. As a result: extra $ 300,000 in cash plus a 50% increase in process capabilities (capacity).
Methods for Designing Your News Account Debt and Accounting Procedure
• Eliminate paper. The biggest single costs for each department of purchase and debt are paper, including: purchase orders, follow-up purchase orders, small purchases, tracking & vendor receipts, and vendor payments. Utilize paperless invoices, web-based suppliers Self-service, centralized vendor files, automated workflows for electronic or di-di-di-electronic invoices (see ERP below), and payment methods, such as business credit cards, Electronic Fund Transfer (EDI) and EFT), can reduce paper handling costs as much as 90%.
• Integrate ERP systems. Enterprise Resource Planning (ERP) automates the purchase and debt functions, which enables the company to complete more work with fewer personnel. Also, the application matching electronic invoice saves time in taking documents. It is estimated that the ERP system can save every year for the sales of $ 300 per million organizations.
• Improve payment terms. Negotiate the provisions of payment based on the receipt of goods or invoices. This can add one week or more to your requirements, which can be 25% of the 30-day requirements. Use EFT for just-in-time payments to maximize your debt provisions and minimize the impact on your credit.
• Take payment discounts. If you get 2% / 10 Net 30 provisions, then consider taking it. This means you are offered a 2% discount if you pay in 10 days, instead of normal 30 days. This translates to a Return of 18% in your capital, and for many of these organizations is a good return on your investment.
• Review purchases. Purchases are a sustainable process that requires sustainable reviews. Consider: Transportation costs, accelerated costs, strange lot penalties, new prices, new products, consolidated vendors, new vendors or group purchases, payment terms, and more. Communicate with your supplier to improve the process. And review and monitor everything to explain changes in your environment.
• Communicate with suppliers. Communicate with your supplier to improve the process. Ask for suppliers to send their invoices electronically. This will save time, resources and disadvantages due to waste.
• Eliminate disputes. Disputes with your suppliers are usually the result of problems with your purchase / acceptance process. When a dispute occurs, review your purchase procedure to ensure that they produce the correct metric and you are not forced to pay your mistakes.
• Reduce mistakes. More payment, payments are made on the wrong vendor, fake invoices, or even late payments represent common problems for debt. Increase your focus on error control, along with written procedures and audits, can reduce this error significantly.
• Train personnel. Give the staff paid by your account with ordinary formal training. It will arm them with better fraud knowledge, negotiating skills, and understanding of the debt economy - which will result in increased effectiveness.
Accounting policies and procedures for cash in banks
In the past few weeks, we have shown you four parts of your financial statements, each will contribute $ 250,000 in cash savings. The last obstacle is debt, and we sailed past it. And now we have crossed our final destination: $ 1,000,000!
Time is - and the key. All you have to do is have it. And, remember, next week we will collect each of the four elements of cash for the cash cycle, and see how it affects your business working capital.