9 Strategies for Writing Accounts Payable Procedures
The Cash to Cash Cycle
Part Four of Series
Next: Complete Cash to Cash Cycle
The white flag is just a nose away?toward the Million dollar prize in cash savings for your business?
So far, in Inventory and Accounts Receivable, we've found $250,000 each in cash savings. Then we found another 250K in Sales and Marketing. And so, now, Accounts Payable is the final process within the Cash to cash Cycle - and also the final $250,000.
The cash cycle is undoubtedly the single most important process to optimize for any business ? from when you spend money to when you get money.
Circling the Cash to Cash Cycle
So let's tie this back to accounts payable - the event that pays for the liability incurred by purchasing, which is for inventory required by manufacturing to meet demand. Sales generate this demand that creates the accounts receivables, which is turned into cash. And now we have come full circle and completed the discussion on the cash to cash cycle.
Increasing the Velocity of Accounts Payable Processes
Your accounts payable is a bit different than the other processes we have examined so far. The first three processes we looked at represented processes where the focus was on reducing the size of assets (inventory or accounts receivable) or expenses (marketing) and increasing the velocity or cycle time. But in accounts payable our focus is on increasing the size of the asset, while maintaining a solid credit rating - and increasing the velocity of the process.
Now let's look at how to find $250,000 in accounts payable savings. If your organization has $500,000 in accounts payable each month, then STOP! We can find $250,000 in savings right here. Where, you ask? Increasing payables by 25% will produce $125,000 in cash plus $125,000 from automating tasks, taking more discounts, and managing the process better.
Service Business Procedures Case Study
An organization with $600,000 in monthly payables needed assistance. We examined their payables process to understand and quantify workflow, paper processing and credit issues. Then we designed and implemented a process to increase their use of payables and discounts, improve their payables cycle efficiency, and tie it to their purchasing and receivable cycles. We then reinvested $50,000 back into an Enterprise Resource Planning (ERP) program to automate some of the processes that weren't automated already.
The metrics we developed reduced their purchasing & payables expenses by 25% and increased their efficiency from 50% to 75% within 2 months of implementing the new procedures. With these new processes and reports, the company now tracks payables cycle efficiency and average days payables, rather than just bills paid on time or outstanding balance, as the measure of their payables effectiveness. The result: an extra $300,000 in cash plus a 50% increase in process capability (capacity).
But how?
Methods to Design Your News Accounts Payable and Accounting Procedures
? Eliminate Paper. The single biggest cost for any purchasing and payables department is paper, including: purchase orders, purchase order follow-up, small-dollar purchases, delivery tracking & receipts, and vendor payments. Utilizing paperless invoices, Web-based supplier self-servicing, centralized vendor files, automated workflows for electronic or imaged invoices (see ERP below), and payment methods, such as business credit cards, Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT), can reduce paper handling costs by as much as 90%.
? Integrate ERP Systems. Enterprise Resource Planning (ERP) automates the purchasing and payables functions, which allows a company to get more work done with fewer personnel. Also, electronic invoice matching applications save time in retrieving paperwork. It is estimated that an ERP system can annually save an organization $300 per million in sales.
? Increase Payment Terms. Negotiate payment terms based on receipt of goods or the invoice. This can add one week or more to your terms, which can be 25% of 30 day terms. Use EFT for just-in-time payments to maximize your payables terms and minimizing the impact to your credit.
? Take Payment Discounts. If you are getting 2%/10 net 30 terms, then consider taking it. This means you are offered a 2% discount if you pay within 10 days, instead of the normal 30 day terms. This translates into an 18% return on your capital, and for many organizations this is a good return on your investment.
? Review Purchases. Purchasing is a continuous process that requires continuous review. Consider: transportation charges, expedited fees, odd lot penalties, new pricing, new products, consolidating vendors, new vendors or buying groups, payment terms, and more. Communicate with your suppliers to improve the process. And review and monitor everything to account for changes in your environment.
? Communicate with Suppliers. Communicate with your suppliers to improve the process. Ask suppliers to submit their invoices electronically. This will save you time, resources and losses due to waste.
? Eliminate Disputes. Disputes with your suppliers are typically the result of a problem with your purchasing/receiving process. When disputes occur, review your purchasing procedures to ensure that they are producing the correct metrics and that you are not forced to pay for your mistakes.
? Reduce Errors. Overpayments, payments made to the wrong vendors, fake invoices, or even late payments represent a common problem for payables. Increasing your focus on error control, along with written procedures and audits, can reduce these errors considerably.
? Train personnel. Provide your accounts payable staff with regular formal training. This will arm them with better knowledge of frauds, negotiating skills, and an understanding of the economics of payables ? which will result in improved effectiveness.
Accounting Policies and Procedures for Cash in the Bank
In the past few weeks, we have showed you four parts of your financial statements that will each contribute $250,000 in cash savings. The last hurdle was Accounts Payable, and we sailed through it. And now we have crossed our final goal: $1,000,000.
Time was - and is - the key. All you have to do is own it. And, remember, next week we will put together each of the four elements of the cash to cash cycle, and look at how it affects the working capital of your business.
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.
 Google News Updated : Sun, 12 Oct 2008 17:51:10 GMT "Chihuahua" bites Crowe, DiCaprio at box office - Reuters Reuters - LOS ANGELES (Reuters) - The new terrorism thriller "Body of Lies" failed to take the top spot at the weekend box office in North America on Sunday, becoming the latest victim of moviegoer aversion to movies dealing with Middle East intrigue. 'Chihuahua' still has bite in second weekend at box office ‘Body’ Talk, Baby Talk Publ.Date : Sun, 12 Oct 2008 16:19:10 GMT US-POLITICS Summary - Washington Post
Washington Post - WASHINGTON (Reuters) - Democrat Barack Obama has opened a 6-point lead over Republican rival John McCain in the US presidential race, according to a Reuters/C-SPAN/Zogby poll released on Sunday. John McCain and Sarah Palin try new tactics Pittsburgh Paper Picks Obama, Pans on McCain/Palin Ticket Publ.Date : Sun, 12 Oct 2008 15:22:18 GMT Stem cell promises, obstacles remain four years after bill's approval - San Jose Mercury News San Jose Mercury News - EDITOR'S NOTE: This is first of a two-part series examining the progress and potential pitfalls in California's $3 billion stem cell research program. Researchers find easier way to make stem cells New method generates stem cells safely from mice Publ.Date : Sun, 12 Oct 2008 16:34:39 GMT Texas new No. 1 in coaches poll after wild college football weekend - USA Today
USA Today - By Eddie Timanus, USA TODAY The date won't quite live in infamy, but college football followers should remember Oct. 11, 2008, for a long time. Kansas fails to move up in polls Texas grabs top ranking in AP Poll Publ.Date : Sun, 12 Oct 2008 17:18:35 GMT Spotlight on Apple notebooks: 1989 to 2008 - CNNMoney.com
CNNMoney.com - On Tuesday, Oct. 14, Apple will unveil the latest addition to a long line of portable computers that dates back nearly 20 years - to the ungainly, 15.8-pound “Macintosh Portable” that PC World named the 17th worst technology product of all time. This week in Apple: New notebooks, new writers, and more Woz Don't Buy A Mac Laptop* Publ.Date : Sun, 12 Oct 2008 15:23:15 GMT Lisa Marie Presley delivers twins: report - Reuters
Reuters - LOS ANGELES (Reuters) - Lisa Marie Presley, Elvis Presley's only child, gave birth to twin baby girls on October 7, celebrity news TV show "Entertainment Tonight" said on its website on Saturday. Twin girls for Lisa Marie Presley Lisa Marie Presley Welcomes Twin Girls Publ.Date : Sat, 11 Oct 2008 17:17:01 GMT Obama Gains in States Such as Iowa, Florida Give National Boost - Bloomberg
Bloomberg - By James Rowley and Kristin Jensen Oct. 12 (Bloomberg) -- Democratic presidential candidate Barack Obama is moving ahead in a series of new polls from Florida to Iowa, gains that are helping him maintain a national lead over Republican John McCain. Video: Kids Vote On Campaign '08 Newsday poll: Obama has double-digit lead on Long Island Publ.Date : Sun, 12 Oct 2008 15:51:54 GMT RSS For Web Pages |
PARLOT::Ebooks, Scripts,
Websites, and more... Many times business owners can have significant differences in management... Read More Are your people consistently following your procedures? Each year, organizations... Read More Australians are loosing their laidback, carefree reputation, as we continue... Read More Have you ever noticed french fries taste the same at... Read More When you first take over a department, expectations are usually... Read More In most industrialized nations, the average age a student graduates... Read More If you have company delivery vehicles at your small or... Read More As a professional speaker, one of my biggest challenges is... Read More Creativity can be defined as problem identification and idea generation... Read More "Must Project Managers be technically savvy?" This topic always seems... Read More A series of articles exploring the seven critical areas that... Read More If you are like most business people, voice mail has... Read More Resistance. It isn't something people cherish or enjoy encountering. We... Read More ACCOUNTABILITY: Delegation is not complete unless subordinates are held accountable... Read More Organizations live and die by results. Yet most organizations get... Read More Once upon a time there lived an innocent, hardworking manager.... Read More 1. What is an Issue?An issue is an incident, circumstance,... Read More Positive versus Negative WorkplacesWe have all worked in places where... Read More Assignment of Claims Act of 1986"....What does this mean for... Read More The candy box is a container for all your favourite... Read More What is the principal thing you need to succeed in... Read More I'm too busy; I'd love to but I'm very busy;... Read More "Nothing inspires confidence in a business man sooner than punctuality,... Read More COMPANY/ORGANIZATIONA South Florida hospital. The CEO of the hospital saw... Read More IntroductionManagers have two powerful ways of improving the performance and... Read More
Adsense
websites
Is Your Management Style Assisting or Hurting Your Business?
Management Procedures Usability ? How to Improve
Work Life a Balancing Act
Its All In The Systems
Better Manager Skills - How to Learn
5 Ideas To Leverage The 3 Stages Of Career Development In Your Organization
Preventative Maintenance of Company Delivery Vehicles
Internal Prisons: The Thief of Productivity and Quality in our Workforce
Creativity and Innovation Management: Specialisation or Generalisation?
Must Project Managers Be Technically Savvy?
The Seven Cs: Partnership Danger Signs - Competitive, Not Complementary Action
Make It Easy to Reply - Voice Mail That Works
Five Ways to Turn Resistance into Opportunity
How to Delegate Effectively
Status Quo Pep Talks That Can Threaten Your Leadership
Once Upon a Conflict
Issue Management Methodology for Tracking Project Issues
How to Create a Positive Work Atmosphere
Invoice Factoring for Goverment Vendors
Recycling, Reverse Logistics and?..Candy
What Is Business Sense?
Is Busyness Affecting Your Business?
Punctuality in Business: What it Says About You
Improving Patient Sensitivity in Doctors and Hospital Staff
OJT - On The Job Training
Affordable and Reliable Web Hosting Starting at $4.49/Month
Business Innovation ? Value versus Quality
Creativity can be defined as problem identification and idea generation... Read More
The Fairness of Office Politics... Integrity and Political Motivation!
I hear many complaints daily about the "unfairness" of politics... Read More
Choices in Appointing International Managers
Globalization is requiring companies to make important choices about how... Read More
Issue Management Methodology for Tracking Project Issues
1. What is an Issue?An issue is an incident, circumstance,... Read More
The Most Important Thing Youll Ever Do
The wellspring of confidence is belief. When you believe in... Read More
Selecting A Collection Agency
If you run a business, you are sure to have... Read More
Quick Tip - Effective Meetings Have a Complete Agenda
Most agendas for a meeting look like this.* Budget* Payroll*... Read More
Multiple Channels, Multiple Times
I've just been reading about the frustrations of a Human... Read More
Hiring a Book Keeping Service
Whether you choose to do your own books and accounting... Read More
Protect Your Computer System with a Comprehensive Security Policy
The most difficult part of creating a Security Policy for... Read More
Quick Tips On Bringing Out The Best In People
Want to bring out the best in people?Edward W. Smith,... Read More
To Meet or Not to Meet - What are the Questions?
Meetings can be a total waste of time or a... Read More
Implementation the Catalyst of Change for Management to Reach that Next Level of Success
From the personal and professional experiences of other colleagues and... Read More
Effective Email Communication
Email, when used properly, can generate additional direct sales and... Read More
Attract and Retain Positively Great Employees - An Action Plan for Employee Training
Everyday a business owner, CEO, or manager somewhere is complaining... Read More
Outsourcing NOT Just for Big Business
Outsourcing has become a controversial issue and a hot topic... Read More
ISO 9001 Compliant Program: Steps to Build
Implementing an ISO 9001 system represents a major effort. However,... Read More
7 Essential Elements To Every Organizational Change
[This article is based on excerpts from the special report... Read More
Innovation Management: The Power of Emotional Attachment
Creativity can be defined as problem identification and idea generation... Read More
Focus and Shoot
One of my earliest childhood memories is watching Lew Alcindor... Read More
Employee Motivation - Access Their Unique Talents
Your people are invaluable to you. They are the lifeblood... Read More
Spirits in the Corporate Boardroom.......Oh, sure......
There is a growing movement in the spiritual... Read More
Innovation Management ? IBM Opens Lid On Its Treasure Chest
IBM, which registered 3248 patents last year, has decided that... Read More
Why Your Business Needs an E-Mail Policy
Why is it imperative to have a company E-Mail Policy?... Read More
A Leadership Lesson: Two Guys With Guns
PERMISSION TO REPUBLISH: This article may be republished in newsletters... Read More
Business Management |