Inventory

Further Research: Upon doing some further research I found out that an entity should:
1. All inventory lines are at least counted once annually 2. When inventory has been sold, but is being kept for customers at

the companys premises until the customer requires it, must be put apart
3. Inventory held at third party locations are to be added with year-

end stock
4. Slow moving, damaged and obsolete items are to be treated with

special care
5. Checking can be in the form of either doing a spot check, or check

the documentation of one transaction from the material requisition to the issue of the item from stock to the department that requires it.
6. Inventory can also be checked by physical inspection. 7. Proper inventory valuation should be made at the lower of cost or

NRV; net realisable value

8. Items held in stock should be valued individually. If this is not

practical, items should be grouped together by their nature and valued as such.

Managing Cash

Cash is the lifeblood of a business, so smart management of your debtors is crucial to success. Greg Charlwood, Asia Pacific CEO of global business finance provider, Bibby Financial Services, shares his tips on how to avoid a messy debtors book and better manage your cash flow. Current economic conditions and uncertainty in the market has meant that many businesses are bracing for an economic slowdown. Greg Charlwood warns that 2008 will be a challenging environment for cash flow. To compound the normal pressures of business, simple sources of cash flow are naturally affected in tight credit conditions. For example, it is common for invoices to be late during tough times, he says. The latest Business-to-business Trade Payments report by Dun & Bradstreet, the worlds leading source of commercial information, reveals that payment terms are increasing across all sectors in Australia. The figures show the average payment term across all sectors has risen to 52.6 daysthats almost four weeks above normal credit terms, says Charlwood. As a small business, you can avoid the worst of these precarious conditions by keeping a tight reign over your debtors book to keep the cash flowing. Charlwood says debt collection strategies will help keep you in the black. Commercial furniture supplier Smart Seating, which services the aged care and healthcare sectors, is reaping the benefits of implementing a system for controlling debtors. As a result, the companys current average payment term is well below the average at 36 days. Kurt Jones, director, says he has two key systems in place to manage cash flowthe use of debtor finance and strict control of debtors. One of our key strategies for credit control is

to always chase up overdue accounts on the due date and then on a weekly basis, he says. Efficient Systems Charlwood shares additional tips for managing debtors in a slowing economy: Check them out. Credit-check all potential customers. Risks must not be underestimated in the enthusiasm of taking on new business. Credit checks can be done quickly and are relatively inexpensive. It is important to establish the correct business title, together with its legal status (i.e., limited company, sole trader etc) before seeking reports from agencies or trade references. Awareness of your customers financial health can safeguard against unreliable debtors. Clearly define credit limits. Always ascertain the expected size and regularity of orders. Use this to address the limits required. Set a specific credit limit for each customer and ensure you stick to it. Never give unlimited credit. Terms and conditions. Terms need to be set at the beginning of a relationship with a new customer and followed up with written confirmation. Terms of sale should be clearly and boldly stated on all relevant documentation, including on order acceptance and invoices. Encourage fast payment. Include a provision for adding interest to the outstanding account to encourage on-time payment. Or consider offering early payment discounts if they pay within a certain credit period. Understand your rights. If you have an outstanding payment, be aware that the law gives you certain rights. Be clear on your companys legal entitlements concerning the Late Payment of Commercial Debt (Interest) Act. Review. Remember that circumstances affecting existing customers are constantly changing. Aim to run credit checks on all your existing clients to ensure their financial situation has not altered. {mospagebreak} Recognise problems. Be aware of potential problems and take action immediately. Only use a solicitor as the last resort as the legal bill may end up costing you more than the amount owed. Check administrative details. Ensure that invoices are correctly addressed, relate to the goods delivered and include order numbers if required. Conduct regular checks to ensure that all details are up-to-date

and accurate. Also ensure the invoice is clearly addressed to the right contact person. Invoice on time. Send out invoices as soon as possible. If you dont, you cant expect to be paid on time. Send out statements monthly. Dont wait until the end of the month if you can send invoices at the same time you send the goods or deliver a service. Credit control. Follow up overdue accounts by telephone. Keeping on top of regular and up-to-date communication with your clients and suppliers is key to credit control. Check customers have received invoices and that there are no queries. Deal with the same person each time you contact the company and make the largest outstanding debts your priority. Smart Seatings Kurt Jones explains: We have one person responsible for collection of debtors and we also make sure we know who is responsible for payment and we deal directly with them. Keep accurate records. Keep clear documentation and have a good filing system in place. The sales ledger must record all sales, credit notes issued, and adjustments to accounts. Invoices and payments should be entered as soon as they are issued or received. Talking stock. Constantly manage your stock levels by ensuring you keep records and plan ahead because holding stock costs you money. One option is to speak to your current suppliers about more frequent deliveries so stock levels can be kept at a minimum. Supply chain. When it comes to managing your suppliers, negotiate the best deal possible. You could get a better deal if you shop around and negotiate longer credit terms and volume discounts. This will spare cash to reinvest into your business. Consider your finance options. Look into the expertise and experience of a business finance organisation that has the systems and resources to help improve your cash flow. One option is factoring, which turns up to 80 percent of the value of each sales invoice into cash within 24 hours. The finance organisation then collects the outstanding payments on behalf of their clients through an effective sales ledger management service. Smart Seating uses debtor finance from Bibby Financial Services as a way to free up its working capital. Kurt Jones explains: Obviously this significantly reduces the number of days between invoice and receipt of cash. In turn this cash is used to manage our creditors, which is the other half of the equation. Charlwood says a growing number of companies are turning to debtor finance for managing outstanding invoices. Collecting outstanding payments can be time-consuming. Not only does debtor finance increase

cash flow overnight, it frees up valuable management time, which can be focused on moving the business forward, he says. These tips may seem obvious on reflection, but many companies get bogged down and forget to apply these simple rules. You may have won the order, but getting paid is just as important.