1、Best Practice Financial Processes:Accounts ReceivableAccount Receivable-Best Practice ObjectivesAccounts Receivable ObjectivesOrganisationPeopleProcessesControlsMeasuresInformation SystemsTo ensure customer payments are received efficiently and effectively for goods/services delivered,within the agr
2、eed terms and conditionsTo manage credit risk efficiently without creating unnecessary delays in the sales cycleTo maintain a complete and accurate statement of outstanding debtorsTo provide complete forecast information to assist the management of short-term cash requirementsCentralised processingE
3、conomies of scaleCustomer focusEstablish credit levelsIssue sales orderIssue invoiceMonitor creditCollect cashProcedures manualAuthorisationValidation/matchingCredit controlCost per invoiceCredit notes percentageCost per payment receivedDays debt outstandingIntegrated with sales systemAutomatic matc
4、hingElectronic receiptsCustomer relationsLegal framework awarenessCredit managementAccounts Receivable-Best Practice FeaturesProcess FeaturesFormal credit checks applied to all new customers within 24 hours using credit bureau Monitor credit status/terms on regular basis Customer account managers pr
5、ovided with up to date credit statusTreasury policy set on late and prompt paymentsAuthority levels clearly definedCredit policies defined and agreedTerms and conditions agreed with customersConsolidated periodic invoicing for high frequency shipmentsBank remittance notices issued with sales invoice
6、s to facilitate reconciliationSelf billing invoices by high volume customersConsider outsourcing regular invoice/payment eg utilitiesRegular review of invoice queries and credit notesReconciliation of AR balances to GL control accounts on a regular basisCredit insurance arrangements evaluated period
7、ically Customer account managers responsible for sales and cash collectionConstant monitoring of debtor days,daily collection,ageing of debtCustomer contact records maintainedOutsource cash collection where appropriateDetermine and report on credit targetsMonitor overdue debts and take action within
8、 agreed policyEstablish credit levelsIssue sales orderIssue invoiceMonitor credit/collect cashSales orders prepared using pricing database with pricing profiles for products and customers No order processed without valid customer PO referenceDelivery note acts as invoice for low-frequency shippingsA
9、ccounts Receivable-Best Practice FeaturesEstablish credit levelsIssue sales orderIssue invoiceMonitor credit/collect cashSystem FeaturesConsolidated credit position for group of customersSystem provides on-line customer payment history and termsUse of workflow software to monitor process and help re
10、solve queriesStandard credit control reportsCommon SOP and AR customer databaseInvoices automatically generated from SOP and shipment dataSelf billing invoices automatically matched to customer ordersMulti currency invoicesAutomatic commitment and accrualsAutomatic reconciliation facilities between
11、integrated SOP AR and GL systemsSOP linked to debtors ledger to ensure customer credit limits not exceededSales documents sent via EDI for all major customersIntegrated order&billing systems available on line&hard copyPayments received electronically where possibleAutomatic matching of payments to i
12、nvoicesOn-line diary facility to monitor callsAutomatic flagging and reporting of high risk accountsAutomatic dunning letters issued within agreed trading termsIntegrated systems to facilitate customer query handlingForecast cash receipts available for treasury purposesAccounts Receivable-TrendsFrom
13、ToSeparate AR modulePayment by chequeComplex/variable trading termsManual matchingPerformed by Finance departmentIntegrated systemsElectronic paymentCommon trading terms for all customersAutomatic matchingShared or outsourced servicesAccounts Receivable-Measures/Cost Drivers90 percentileMedian10 per
14、centileNumber of customer payment received per accounts receivable FTE per annum40,3005,500700 or lessAccounts receivable cost per sales invoice processed10 percentileMedian90 percentile1318Median1 day90 percentile4 days10 percentile1 dayDays to process invoice/credit note(ie,time between receipt of
15、 invoice/credit note and entry into the accounting system)Cost driversNumber of AR receiptsLevel of multiple receiptsUse of direct debiting/standing ordersUse of electric funds transferLevel of credit risk associated with customer baseVariety in payment termsDegree of foreign currency receiptsLevel
16、of credit notesBilling-Measures/Cost Drivers90 percentileMedian10 percentileNumber of sales invoices generated per billing FTE per annum 90,00011,1001,600Billing cost per sales invoice and credit note processed10 percentileMedian90 percentile1222Median2 days90 percentile15 days10 percentile1 dayDays
17、 from despatch of goods to preparation of sales invoiceCost driversNumber of invoicesNumber of customersUse of EDIComplexity of service/goods suppliedVariety in terms and conditionsComplexity of discountsDegree of foreign currency invoicingNumber of complaintsAccuracy/level of credit notesAccounts R
18、eceivable-Level 0 Context DiagramAccountsReceivableBillsAdhoc invoices&standing dataReminders&StatementsGLPostingsGeneral LedgerCustomersBankManual InvoicesBilling SystemStandingDataPayments(cash,cheque)Direct DebitInstructionsStatementsPayment details(Bank Giro credits)Customer Services SystemAlso
19、electronic AP/AR data from bank for auto cash managementAccounts Receivable-Level 1 OverviewCustomerStandingData,Bills&Credit NotesAR StaffAR systemBilling systemCustomerdetailsAR data import proceduresInterface RulesAR StaffBilling systemAR systemCustomer DataLogged on ARSystemInvoice/credit noteen
20、try rules,Bills and credit notes loading proceduresAR StaffAR SystemBills&credit notesManual invoice request Customermaintenanceprocedures,Customer relationshiprulesImport standing data,bills&credit notesAR 1.1Maintain customer dataAR 1.2Process bills,invoices&credit notesAR 1.3DatavalidationreportC
21、ustomer reportManage receivablesAR 1.4Process receipts and direct debitsAR 1.5Process period endAR 1.7Credit control policies and procedures,Call logging procedures,Provision creation rules,Legal proceedings rulesAR staffAR systemCredit controlOpen invoiceson AR systemPrint invoices despatchedGL upd
22、atesOutstandingdebtorsCheque and receipts processing rules,Automatic allocation rules,Manual allocation rules,On account payment rulesCash/cheque/bank receiptsList of DD customers amounts dueAR staffAR systemBank statementTransaction dataReview procedures,Archiving rules,Period data proceduresAR sta
23、ffAR systemPayment on accountlogged on AR systemMatched DDreceipts logged on AR systemRequest to bankProcess amendmentsAR 1.6New periodopenedon AR systemPeriod endGL postingsMatchedreceiptsarchivedPeriod reportsproducedAmendment ofvalidation rules,Amendment inputproceduresAdjustmentsAmendmentsGL upd
24、atesAudit reportDebtor reportDunningletter/statementAmendment request,notify departmentProvision journalsAccounts Receivable Notes Maintain customer dataBest Practice FeaturesSend bill to one address only.Where a customer is provided with goods or services at a number of locations,the consolidation
25、in the billing process not only reduces the number of bills to be verified or created but also decreases the potential need to reconcile a number of receivables on individual accounts.Centralise the customer set-up process in order to ensure consistency.Internal control requirementsIn order to minim
26、ise the risk of duplication of the data and the unauthorised set-up of customers,the process should be centrally controlled and operated.Before any customer is deleted from the system,evidence should be produced that the customer has been inactive for the appropriate period of time and no outstandin
27、g balances are present.Approval for deletion is obtained by management authority signature.The changes to customers report is regularly checked and monitored.System notification of duplicate business and birth registration numbers.Accounts Receivable Notes Maintain customer dataCost DriversNumber of
28、 customersNumber of new customersNumber of customer changesNumber of required customer standing data fields Possibility of sharing standing databaseOverlap between databasesSearch criteria and standardisation to avoid duplication/redundancyKey Performance IndicatorsNumber of changes and additions ca
29、rried out in a year per FTENumber of customers in op.database without transactions for 1 yearPercentage of changes and additions of total customer baseAccounts Receivable Notes Manage ReceivablesBest Practice FeaturesAged debit balances should be reviewed by management on a regular basis and explana
30、tions sought as to why debts have failed to be recovered.Overdue debit balances occur as a result a number of factors of sub-optimal performances within the sales department or within the credit control process or AR-info not recorded from bank quickly enough and therefore not processed quickly enou
31、gh or timing of invoice issue.The root causes need to be addressed and rectified by altering the creditability status of the customer.Automatic flagging and reporting of high risk accounts.Materiality and time limits.Internal control requirementsIt is essential that debit balances are reviewed regul
32、arly and matched with payments promptly in order to avoid the risk of fraud and minimise the chances of bad debt.Computer diary of actions taken.Stops placed on overdue customers.Aged debtor report sent to legal department and functional managers.Accounts Receivable Notes Manage receivables(Cont)Cos
33、t DriversNumber of overdue open items.Number of steps in the dunning procedure.Quality and timing of the matching process of receipts.Availability of dunning enforcement measures.Tolerance criteria.Payment terms and conditions policy.Key Performance indicatorsDays outstanding as a percentage of aver
34、age payment term.Value of overdue invoices as a percentage of outstanding balances.Bad Debt Provision as a percentage of outstanding balances.Process cost/customer payment received.Number of dunning letters as%of total invoices.Write off value as%of(sundry)sales revenue.Accounts Receivable Notes Pro
35、cess receipts and direct debitsBest practice featuresUse of an electronic interface between bank,cashiers and AR treasuryAutomatic matching of receipts by value and invoice number Internal control requirementsInterface control total with bank and cashiers,dailyRegular supervisory review of open and
36、unmatched itemsDocumentation of all overdue open items and unmatched receiptsAccounts Receivable Notes Process receipts and direct debitsCost DriversNo.of Receipts for more than one transactionPercentage of downpaymentsQuality of payment informationNumber of unmatched paymentsNumber of foreign curre
37、ncy receipts and exchange rate differencesTolerance payment differencesNumber of criteria for automatic matchingKey Performance IndicatorsMonthly and cumulative tolerance difference amountsPercentage of receipts cleared automatically in monthNumber of manually matched receipts per FTE Number of unma
38、tched receipts older than 1 monthAccounts Receivable Notes Process amendmentsBest Practice FeaturesSingle contact point for all queries.Although the query processing can be distributed there are obvious inefficiencies in directing enquiries to a number of contact points.Have access to sufficient dat
39、a to be able to handle the majority of queries on-line.In this context,the use of image processing allows invoices to be called up on screen quickly and,if necessary,automatically copied to the enquirer through the medium of autofax.Internal control requirementsIn order to operate an effective helpd
40、esk,staff will require to have access to most parts of the accounts receivable system.This should be on a read only basis in order to minimise the potential for fraud taking place.Targets set for time to answer queries.Accounts Receivable Notes Process amendmentsCost DriversNumber and variety of que
41、ries received.Availability and flexibility of standard screens.Complexity of database for tailor-made queries.Response times of enquiry systems.User-friendliness of enquiry systems.Key Performance IndicatorsAverage time taken to process queries.Percentage of queries answered within targeted time.Acc
42、ounts Receivable Notes Process period endBest Practice FeaturesAutomatic process requiring minimum or no manual intervention.This is a standard feature of modern Accounts Receivable packages and the only possible problem area could be with the nature of the interface with the general ledger package.
43、Internal control requirementsThe basic requirement is to ensure that the data transmitted to the general ledger is complete and on time.There is a requirement to ensure that the information recorded in the general ledger agrees with the output from accounts receivable.A reconciliation should be carr
44、ied out between debtor balances on GL compared with AR.Check VAT exception report to pick up any late VAT postings.Cost DriversVolume of monthly period end reports.Quality of day to day controls.Key Performance IndicatorsPercentage of period end closures within target.Average number of days to produce monthly information.
