Cash Collection

6 Key excerpts on "Cash Collection"

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  eBook - PDF

  Managing Cash Flow

  An Operational Focus

  • Rob Reider, Peter B. Heyler(Authors)
  • 2003(Publication Date)
  • Wiley

    (Publisher)

  It would be ideal for businesses to be able to collect the cash due upon delivery of their goods and/or services. Even better would be to collect in advance of deliv- ery. While a worthy goal of an effective cash management system, this is unlikely for most businesses. Therefore, the cash manager should concentrate on develop- ing effective and efficient collection systems to increase cash flow and keep invest- Cash Receipts 43 ment in accounts receivable at a manageable minimum level. Various factors have an impact on this goal, including: • Credit policy • Invoicing procedures • Accounts receivable follow-up • Cash discounts • Finance charges • Holding delivery Credit Policy While it would be best to be able to collect the cash at the time (or in advance) of the sale, almost all businesses offer credit terms or a grace period to pay for goods and services to be competitive. The company’s credit policies should include the time period within which its customers are expected to remit cash. In addition, there normally is a set dollar amount or credit limit beyond which credit will not be granted. For instance, a customer with a credit limit of $3,000 and credit terms of 30 days is expected to pay within 30 days and not exceed a $3,000 balance out- standing at any time. Should the outstanding balance exceed $3,000, the company must decide whether to stop selling to the customer, sell on COD terms only, or increase the credit limit. Setting credit policies is only part of the system; enforce- ment and control to ensure adherence is also a necessary part so as to maximize cash inflow and minimize credit losses. When customers purchase goods or services they agree to pay within the designated period of time stated in the credit policy, and the company agrees to carry them as a receivable. If all customers pay within the agreed-upon time peri- od, the credit term period defines the collection period.

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  Essentials of Credit, Collections, and Accounts Receivable

  • Mary S. Schaeffer(Author)
  • 2002(Publication Date)
  • Wiley

    (Publisher)

  S ummary Billing is an important function that affects the bottom line. If done as efficiently as possible, collections will come in faster increasing invest- ment income or decreasing borrowing expenses. It is a function that is often overlooked when companies are looking for ways to become more efficient. Thus, by making recommendations for change in this area, credit professionals can make a difference. As companies continue to look for ways to cut costs and become more efficient, electronic billing will become a more common tool in corporate America. Those who understand what is involved will be well armed to advise their companies. 48 ESSENTIALS of Credit, Collections, and Accounts Receivable 49 After reading this chapter you will be able to • Understand where collections fits into the big picture • Evaluate different collection techniques • Know when to turn an account over to a collection agency • Realize when a lawyer is needed to approach the debtor T here is an old saying in the credit profession that says, “a sale is a gift until the invoice is paid.” It is the job of the collectors to turn those gifts into sales. If customers paid what they owe when it was due, there would be no collection jobs. However, as those involved in the field are well aware, not only are companies not paying their bills on time, there is a growing trend toward paying them later and later. Thus, the need for collectors with good skills is stronger than ever. There are a wide variety of approaches that can be taken to collect money and collect it faster. The traditional collection tool was a letter. While this is still used, and we’ll share some collection letter techniques that work, many look down on this approach. The phone is the approach that many deem the most successful for generating payments. In this electronic age, fax machines and e-mail are also used.

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  Financial Accounting

  Reporting, Analysis and Decision Making

  • Shirley Carlon, Rosina McAlpine, Chrisann Lee, Lorena Mitrione, Ngaire Kirk, Lily Wong(Authors)
  • 2021(Publication Date)
  • Wiley

    (Publisher)

  7.5 Discuss the basic principles of cash management. The basic principles of cash management include: (a) increase collec- tion of receivables, (b) keep inventory levels low, (c) don’t pay earlier than necessary, (d) plan timing of major expenditures, and (e) invest idle cash. The cash to daily expense ratio indicates how many days of expenses the current cash resources will cover. 7.6 Assess the adequacy of cash. In evaluating an entity’s cash management practices, one of the key considerations is whether the amount of cash held is adequate to cover its daily operational needs. One measure of the adequacy of cash is the ratio of cash to daily cash expenses. This ratio provides management and external decision makers with some insight into the entity’s ability to cover its daily expenditure. A low level of coverage may require further investigation to avert potential liquidity issues. In contrast, a very high level of coverage may indicate excessive cash held. In this case, management may consider alternative investment opportunities to maximise the returns on any cash in surplus of its daily needs. 7.7 Identify the different types of receivables. Receivables are frequently classified as accounts, notes and other. Accounts receivable are amounts owed by customers on account. Notes receivable represent claims that are evidenced by formal instru- ments of credit. Other receivables include non-trade receivables such as interest receivable, loans to officers, advances to employees, and goods and services tax refundable. 7.8 Describe how to value receivables. Accounts receivable are recorded at the invoice price and reduced by sales returns and allowances. The two methods of accounting for uncollectable accounts are the direct write-off method and the allowance method, which emphasises the net amount of accounts receivable estimated to be received.

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  Financial Management for Nonprofit Organizations

  Policies and Practices

  • Jo Ann Hankin, Alan Seidner, John Zietlow(Authors)
  • 2011(Publication Date)
  • Wiley

    (Publisher)

  The primary goal of this section is to identify the trends and opportunities that nonprofits should consider to enhance treasury functions relating to cash management. Collection and disbursement mechanics that have benefited from technological advances will be highlighted, along with regulatory and banking developments. Identifying electronic systems for accelerating the collection of remittances and controlling disbursements to ensure timely and orderly outflows will be explored. Last, the strategy for identifying, selecting, and working with the right bank or financial service provider will be addressed. What is the bank’s breadth of product, systems, and service levels? How committed is the bank to maintaining and improving its product and service offerings? How important is this account to the bank? What is the bank’s financial strength? With the right financial service provider(s) as partner(s) and the appropriate technology to support operations, many benefits and opportunities can be maximized.

  11.2 WHAT IS CASH MANAGEMENT?

  Cash management encompasses a number of activities within these primary functions:

  • Cash Collection
  • Cash concentration
  • Cash disbursements
  • Investment of surplus cash, if any
  • Financing or borrowing
  • Forecasting “cash flows”
  • Managing bank relations

  The fiduciary responsibility of nonprofits must be balanced in the way business is conducted. Financial risks should be recognized and appropriate measures taken to safeguard assets. In designing and structuring a good cash management program, distinguishing day-to-day functions from strategic objectives is important. At the same time, focusing on efficiency must take into account control and flexibility in managing cash, based on a strong understanding of organizational cash flows (see Exhibit 11.2

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  CEO Logic

  How to Think and Act Like a Chief Executive

  • C Ray Johnson(Author)
  • 1998(Publication Date)
  • Career Press

    (Publisher)

  Use your short-term debt to fund operations. Growth in sales will no doubt result in a corresponding growth in receivables. The bank will cry foul if you use your operating loans to make capital acquisitions. They expect that you will stay within the spirit as well as the letter of the agreement. This guideline also applies to human and physical resources. Hire temporary help, rent temporary vehicles, and rent temporary space for short-term projects. Avoid the long-term risk of not fully amortizing the assets. Do this even if the high cost of short-term resources lowers your short-term margins. The ins and outs of credit and collection Credit extension, billing procedures, and receivables collections are obvious places to begin cash flow management. The operational side of an effective cash management system begins in these areas. Procedures need to be established and disciplined, people need to be trained, and results need to be measured and monitored. Each individual involved in these functions will contribute more by having complete knowledge of the entire process as well as by knowing what part he plays in ensuring proper cash management. The performance of these individuals will also be greatly improved by their understanding the overall importance and potential consequences of managing cash. The items below will start you down the path toward professional cash management. Credit collection starts with credit extension. Sometimes managers in highly sales-oriented companies tend to cut corners when establishing terms and payment guidelines with new customers. They may also be tempted to shortcut or slight the credit analysis step. They are using credit extension—as most companies do—as a sales tool

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  Accounting

  Reporting, Analysis and Decision Making

  • Shirley Carlon, Rosina McAlpine, Chrisann Lee, Lorena Mitrione, Ngaire Kirk, Lily Wong(Authors)
  • 2021(Publication Date)
  • Wiley

    (Publisher)

  If the business needs additional cash, management can accelerate the col- lection of cash from receivables by selling (factoring) its receivables or by allowing customers to pay with credit cards. 7.11 Explain the operation of a petty cash fund. In operating a petty cash fund, an entity establishes the fund by appointing a custodian and determining the size of the fund. Payments from the fund are made for documented expenditures, and the fund is replenished as needed and at the end of each accounting period. Accounting entries to record payments are made at that time. KEY TERMS accounts receivable Amounts due from customers for the sale of goods or services on credit. Also called debtors or trade debtors. ageing the accounts receivable A method of determining the allowance for doubtful debts by analysing customer balances by the length of time they have been unpaid. allowance method A method of accounting for bad debts that involves estimating uncollectable accounts at the end of each period and recognising an allowance account as a contra accounts receivable account. 394 Accounting: Reporting, analysis and decision making average collection period The average number of days that receivables are outstanding, calculated as receivables turnover divided into 365 days. bad debts expense An expense account to record uncollectable receivables. bank statement A statement received from the bank that shows the depositor’s bank transactions and balances for a period. cash Resources that consist of cash on hand, cash at bank, savings and transactions accounts, and highly liquid investments such as deposits on the money market and 90-day bank acceptance bills. cash over and short A general ledger account for recording surplus or deficit of petty cash. credit risk The threat of non-payment of receivables that could adversely affect the financial health of a business.

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