Chapter 12

1.2 Approve customer credit IT improvements

-Automatic checking of credit limits and balances -Emails or IMs to the credit manager for accounts needing specific authorization

2.1 Pick and Pack the order technology improvements

-Bar code scanners -Conveyer belts -Wireless technology so workers can receive instructions without returning to dispatch -Radio frequency identification (RFID) tags

1.3 Check Inventory availability - enough units to fill the order

-Complete the sales order -Update the quantity available field in the inventory file -Notify the following departments of the sale: 1. Inventory (picking ticket) 2. Billing 3. Shipping -Send an acknowledgment to the customer

1.2 Approve customer credit

-Credit sales should be approved before the order is processed any furthur -Two types of credit authorization: 1. General 2. Specific

Balance Forward Method

-Customers pay according to amount on their monthly statement, rather than by invoice -Monthly statement lists transactions since the last statement and lists the current balance Advantages: -Increased efficiency for companies Disadvantages: -think about if a credit card company used this. Lots of payments received the 30th of the month and employees would have to work a lot harder monthly.

RFID tags

-Eliminate the need to align goods with scanner -Allow inventory to be tracked as it moves through warehouse Can store up to 128 bytes of data

1.3 Check Inventory availability - not enough units to fill the order

-For manufacturing companies, notify the production department that more should be manufactured. -For retail companies, notify purchasing that more should be purchased.

1.4 Respond to customer inquiries

-May occur before or after the order is placed -The quality of this customer service can be critical to company success -more expensive to gain new customers than to retain existing customers (5 times more expensive)

Customer Relationship Management (CRM) systems

-Organizes customer data to facilitate efficient and personalized service -Provides data about customer needs and business practices so they can be contacted proactively about the need to reorder

1.4 Respond to customer inquiries IT improvements

-POS systems can link to the customer master file -IT should be used to automate responses to routine customer requests. -The effectiveness of a website depends on its design -Many companies use Customer Relationship Management (CRM) systems to support this process

2.2 Ship Goods

-Shipping department compares physical count of inventory, quantities indicated on picking ticket, and quantities on sales orders -discrepancies can arise if: 1. Items weren't stored in the location indicated 2. Perpetual inventory records were inaccurate -if there are discrepancies, a back order is initiated

1.1 Take the Customer Order

-Source document: sales order The sales order (paper or electronic) indicates: -Item numbers ordered -Quantities -Prices -Salesperson -Etc. -communication method between customer and the company. EX: entered into quickbooks.

2.1 Pick and Pack the order

-Source documents: picking ticket -picking ticket identifies: 1. which products to pick 2. what quantity -Warehouse workers record the quantities picked on the picking ticket, which may be a paper or electronic document. -The picked inventory is then transferred to the shipping department.

2. Shipping

-The second basic activity in the revenue cycle is filling customer orders and shipping the desired merchandise. -2 steps: 1. Picking and packing the order 2. Shipping the order -The warehouse department typically picks the order -The shipping departments packs and ships the order -Both functions include custody of inventory and ultimately report to the VP of Manufacturing.

4. Cash Collections approaches

-Turnaround documents forwarded to accounts receivable -Lockbox arrangements -Electronic lockboxes -Electronic funds transfer (EFT) -Financial electronic data interchange (FEDI) -Accept credit cards or procurement cards from customers

Image processing

Digital images of customer remittances and accounts are stored electronically Advantages: -Fast, easy retrieval -Copy of document can be instantly transmitted to customer or others -Multiple people can view document at once -Drastically reduces document storage space

Specific authorization

credit manager checking out customer's credit before sale is final

General authorization

anyone can buy it

3. Billing

involves 2 tasks: 1. invoicing/billing 2. updating accounts receivable

1.3 Check inventory availability

-When the order has been received and the customer's credit approved, the next step is to ensure there is sufficient inventory to fill the order and advise the customer of the delivery date. -The sales order clerk can usually reference a screen displaying: 1. Quantity on hand 2. Quantity already committed to others 3. Quantity on order -If there is enough to fill an order, you fill it, notify building and shipping inventory, and sent it out -put on backorder if not enough is available to meet demand

1.1 Take the Customer order IT improvements

-have customers enter data themselves (OCR, webpages, etc.) -Orders entered online can be routed directly to the warehouse for picking and shipping. -Sales history can be used to customize solicitations. -Choiceboards can be used to customize orders. -Electronic data interchange (EDI) can be used to link a company directly with its customers to receive orders or even manage the customer's inventory. -Email and instant messaging are used to notify sales staff of price changes and promotions.

Billing Process Threats/Controls

1. Failure to bill customer a. Separate shipping and billing functions b. Reconcile invoices with sales orders, picking tickets and shipping documents 2. Billing errors a. Automatically enter price data b. Restrict access to master price data c. Data entry edit controls d. Reconcile shipping docs and sales order 3. Posting errors in accounts receivable a. Data entry controls b. Reconcile batch totals c. Mail monthly statements d. Reconcile subsidiary accounts receivable 4. Inaccurate or invalid credit memos a. Segregation of authorization and recording function for credit memos b. Block credit memos without documentation of returned goods or specific authorization

Sales Order Entry Processing Threats and Controls

1. Incomplete/Inaccurate orders a. Data entry edit controls b. Restrict access to master data 2. Invalid orders a. Signature to authorize sale 3. Uncollectible accounts a. Credit limits b. Specific authorization c. Aging accounts receivable 4. Stockouts and excess inventory a. Perpetual inventory system b. RFID or bar code technology c. Training d. Physical inventory counts e. Sales forecasts and activity reports 5. Loss of customers a. CRM systems, self-help Web sites, etc.

Shipping Process Threats/Controls

1. Picking wrong item or quantity to ship a. Bar code technology &RFID b. Reconcile picking list to sales order 2. Theft a. Restrict physical access to inventory b. Document inventory transfers c. RFID and bar code technology d. Physical counts of inventory 3. Shipping errors (delay or failure to ship, wrong quantities, wrong items, wrong addresses, etc.) a. Reconcile shipping documents to sales orders, picking lists, and packing slips b. Use RFID system to identify delays c. Data entry via bar-codes & RFID d. Data entry edit controls e. Configuration of ERP system

Revenue Cycle Activities

1. Sales order entry 2. Shipping 3. Billing 4. Cash collections

Cash Collection Process Threats/Controls

1. Theft of Cash a. Separation of cash handling function from accounts receivable and credit functions and bank reconciliation b. Use of EFT, FEDI, and lockboxes c. Use a UPIC to receive EFT and FEDI payments d. Upon opening mail, create list of payments e. Prompt, restrictive endorsement of customer checks f. Having two people open all mail likely to contain customer payments g. Use of cash registers h. Daily deposit of all cash receipts 2. Cashflow problems a. Lockbox arrangements, EFT, or credit cards b. Discounts for prompt payment by customers c. Cash flow budgets

1. Sales Order Entry Processing Steps

1.1 Take the customer order 1.2 Approve customer credit 1.3 Check inventory availability 1.4 Respond to customer inquiries -Performed by Sales Department (reports to VP of Marketing)

Revenue Cycle

A recurring set of business activities and related information processing operations associated with: -Providing goods and services to customers -Collecting their cash payments -The primary external exchange of information is with customers.

Open-Invoice Method

Customers pay according to each invoice -Two copies of the invoice are typically sent to the customer -remittance advice Advantages: -Conducive to offering early-payment discounts -Results in more uniform flow of cash collections Disadvantages: -more complex to maintain

4. Cash Collections

The final activity in the revenue cycle is collecting cash from customers The cashier, who reports to the treasurer, handles customer remittances and deposits them in the bank Because cash and checks are highly vulnerable, controls should be in place to discourage theft

Cycle Billing

commonly used with the balance-forward method -monthly statements are prepared for subsets of customers at different times