Released on: March 15, 2008, 1:39 am

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as long as the resource box is included with the article. If you do run my article,
a courtesy reply to sean@bizmanualz.com would be greatly appreciated. This article
is 909 words long including the resource box. Thanks for your interest. Part Two of
Cash to Cash Cycle Series




Press Release Body: You have permission to publish this article free of charge, as
long as the resource box is included with the article. If you do run my article, a
courtesy reply to sean@bizmanualz.com would be greatly appreciated. This article is
909 words long including the resource box. Thanks for your interest.

Part Two of Cash to Cash Cycle Series

Part One: http://www.bizmanualz.com/articles/01-05-05_inventory_procedures.html/?ART78

Next Week: 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 day's 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?

Maximize 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
in 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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