9 Strategies for Writing Accounts Payable Procedures

by: Chris Anderson

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 1,067 words long including the resource box. Thanks for your interest. The Cash to Cash Cycle Part Four of Series Part One: http://www.bizmanualz.com/articles/01-05-05_inventory_procedures.html/?ART78 Part Two: http://www.bizmanualz.com/articles/01-11-05_accounts_receivable.html/?ART79 Part Three: http://www.bizmanualz.com/articles/01-18-05_Sales_Marketing.html/?ART80 Next Week: 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. About the author: 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: http://www.bizmanualz.com?src=ART81 Circulated by Article Emporium

10 Powerful Ways To Grow Your Income

by: John Karnish

1. Don't forget to follow up with your customers. You could follow up with a related product, service or affiliate program. Follow up every month or so with a new product and watch your wallet grow. 2. You can always upsell to your customers. When they reach your order page, let them know about a few extra related products that you sell. This is a great way to squeeze more profit from each customer. 3. Let your customers refer new customers for a full rebate of their purchase. This could easily turn one sale into three or four. 4. Let your customers know about your affiliate program. Work in how they only have to refer a few people in order to pay back their purchase price and make a profit. 5. Sell resell rights to your product or even sell a brandable version. You can include an ad for similar products and make money off of the sales and also make money selling the resell rights to your product as a back end. 6. Create a package with other people’s products. You could include a sample and offer the product owners a portion of the referral sales from the sample. This is an easy way of having other people sell your product for you. 7 Offer your customers a discount on a related product. Since they all ready have built a relationship with them, you could push a higher ticket product. 8. Send your customers offers for add-ons to your original products. You could easily offer upgrades, related services, software and so on. If they enjoyed the original product, they’ll buy the add-ons. 9. Sell gift certificates for your products. You'll make money from the sales of the gift certificates and you can follow up with related products in order to profit from future sales. 10. Send your customers freebies. You could place an ad for your website on bumper stickers, baseball hats, t-shirts and so forth. Through indirect exposure, people will visit your website and purchase. About the author: John Karnish is the founder of OptInIncome.Net, a free membership site devoted to building responsive mailing lists. Get “so many subscribers that your autoresponder demands a raise!” ==> http://www.optinincome.net Circulated by Article Emporium