Managment Of Account Receivable Essay

4263 words - 18 pages

Management of Accounts Receivable
December 1997

Contents
Preface
Introduction The Accounts Receivable Process Re-Engineering Accounts Receivable Risk Management Use of Advanced Technology Debt Collection Processes Performance Measurement Appendix

Preface
This guide accompanies the Auditor-General’s Audit Report No. 29, Management of Accounts Receivable in the Commonwealth. It is intended to provide an overview of the current trends and "better practice" approaches that are being adopted by organisations in managing accounts receivable. In the commercial world the way in which organisations manage their accounts receivable has significant implications for the financial health of ...view middle of the document...

An effective accounts receivable function can assist in achieving the desired cash flow outcome through the timely collection of outstanding debts. All agencies also have an objective of continually improving customer service. A large number of agencies which operate as businesses are required to perform public services under a full or partial cost recovery arrangement. Effective accounts receivable management can assist agencies improve customer service through providing timely information on customer requirements and by making dealing with the agency as easy as possible. All government agencies, including those operating in a monopoly, are required to demonstrate contestability - that is delivery of a high quality standard of service at a cost that is comparable to providers of similar services operating in similar environments. Improvements in accounts receivable management which reduce the cost of collecting monies can improve an agency’s ability to demonstrate contestability and accountability. Importance of Organisational Culture An international receivables management benchmarking study commissioned by the Australian Taxation Office has highlighted the importance that organisational culture has in the successful management of accounts receivable. The study, which involved the survey of five international taxation agencies and eight domestic organisations for which accounts receivable is a strategic issue, indicated that management attitudes need to support practices for minimisation of debt. All agencies should adopt a culture whereby staff are encouraged to obtain payment, where required, and not just focus on program or service delivery. The Accounts Receivable Process A typical accounts receivable process is mapped below. The process commences with a receipt of a customer order and ends with the collection or write off of a debt. Financial management functions such as accounts receivable have been traditionally viewed as transaction processing activities. An international benchmarking study referred to in the Paying Accounts Better Practice Guide issued by the ANAO in November 1996 indicated that up to 65 per cent of time was spent on non-value added activities across all government and industry sectors. The study suggested that the elimination or reduction of non-value tasks can be effected through better work practices and automation of

processes. This can be achieved by analysing current processes and redesigning them to remove as much manual intervention as possible, reducing rekeying and appraisal activities and minimising operator error. An important part of this analysis is a formal, structured risk assessment which identifies and measures exposures associated with the accounts receivable process. The following diagram highlights the opportunities available for improvement through better practices. Significant advances in accounts receivable performance and process efficiency are available to agencies through the following...

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