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 agreed 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 processingEconomies 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 matchingElectronic 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 provided 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 invoices 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 periodically 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 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 shippingsAccounts 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 resolve 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 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 invoicesOn-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 - TrendsFromToSeparate 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 percentileNumber 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 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 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 from despatch of goods to preparation of sales invoiceCost driversNumber of invoicesNumber of customersUse of EDIComplexity of service/goods suppliedVariety in terms and condi