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SHORTENING BILLING AND AR COLLECTION CYCLE TIME ACCELERATES CASH FLOW

April 30th, 2012 | Posted by IABlogAdmin in Business Process Improvement | Cash Flow | Operational Audit | Order to Cash

By Phil Bertram, Principal, Bertram & Associates LLC

Internal Auditors continually receive challenges to deliver more value.  During the past ten years, we delivered that value through our Sarbanes-Oxley Act and other internal control assurance efforts, often to the exclusion of adding value through operational improvements.  Few, if any, internal audit functions performed operational audits.  As a profession, we missed many chances to add value in tangible, practical ways.

Today, we can lead and add value effectively by improving cash flow within the Order to Cash Process.  We can do so by eliminating the root causes of delays in generating cash by following these six steps:

  1. Understand the process.  Document the Order to Cash Process, its controls, and information flows.  Then, identify where delays could occur.
  2. Analyze policies, contracts, and payment terms.  Read contracts, credit & collection policies, and desk manuals; and review cash collection procedures.  Note terms, steps, and requirements that impact cycle time.
  3. Determine the actual process cycle time, including the time to collect the receivables.  Analyze the business process flow and the related financial reports, statements, and KPI’s. Determine the time it takes to issue an invoice and collect and record cash.  Consider delays in invoicing, payment terms, collections methods, and any monitoring controls.  This step helps prove or disprove any theories developed as to where cycle time delays may exist.
  4. Identify the causes of potential delays.  Identify where the delays occur and target them for elimination through process, performance, or terms improvements.
  5. Confirm your findings with management.  Discuss your findings with management.  Confirm that you have understood the process correctly and adequately supported your findings.
  6. Suggest improvements.  Identify the root causes of time delays.  Develop suggestions for reducing cycle time.  Use the data obtained above to support the improvement suggestions you make.  Discuss these with management.  Adjust them to ensure they solve the problems identified practically.  Seek to eliminate the root causes permanently, so the improvements produce sustainable results.

Bertram & Associates LLC faced this challenge many times.  One time, we delivered a $5 million cash flow improvement on a $100 million book of business for management.

We can help your business discover hidden value within your Order to Cash and other processes!  Visit our web site:  www.PBertram.com and our Case Study: “Economic Value Audits Enhance Cash Flow” to learn more.  If you wish to discuss how we might help you find that value, please contact us through this blog, at Inquiry@PBertram.com, or call us at 224.735.7472.

 

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