In all organizations, ‘Cash is King’. I remember working at a small, young business, and there seemed to be a crucial part of the business cycle that was breaking down. We were not consistently or accurately billing the customer. I knew that we would struggle to truly grow or manage cash until we improved the Billing process.

A business can provide excellent customer service and do everything right, but if we forget to bill the customer and collect the cash, we certainly won’t be in business long. I have also been at the other end of poor billing. Once I received an invoice from a small business that billed us for the whole year. We had not been expecting such a large invoice, so it surprised me as the Controller of this company. We ended up paying this business, but it was not good customer service. I did not want to continue to use their services after this.

The Financial Cycle

All businesses adhere to the same financial cycle. Once we provide the service or sell the product, we look to get paid. We then use this money to disburse to employees, vendors, and other operating expenses. This cycle goes round and round. There are three main parts to have a quality Financial Cycle.

1.  Receipts

Receipts cover many different areas. For example, it could start with Billing your customers in accordance with the contract. It also involves the payment of invoices and ensuring that you make it easy for your customers to pay you. How do you handle payments by check, credit card, or ACH?  Do you have a process to review the AR collections and follow up on slow payments? In some cases, there could be another system than the accounting system to track all payments that need to be reconciled to the bank. I have seen this with nonprofits, churches, and schools. Do you have a good process to reconcile this? Are you reconciling to the bank? Are you handling cash in a way that avoids fraud?

2. Disbursements

Disbursement processes involve how money leaves your company. This process involves all activities such as Bill Pay, Credit Card, Expense Reports, and Payroll. How are you processing all the bills? Is there a proper separation between the person entering the bills, approving, and paying bills? Do you have a good procedure to review payroll and make tax payments? Are you getting the support needed for all credit card charges and expense reports? Who is reviewing this? Is there accountability?

3. Month-End

To ensure the proper accuracy of your financials, you should have consistent procedures during month-end. These procedures involve reconciling all the Balance Sheet accounts. You should review your financials and compare them to the budget, last year, and the previous month. It involves informing the people in your company of the financial situation and forecasting where the business is going. If you have the right financial procedures, you will have consistent and accurate financials, and your business will be well informed to make quality decisions.

There is so much to discuss in each of the three main areas of the Financial Cycle. I plan to spend the next three articles diving more in-depth into the Receipts, Disbursements, and Month-end processes. We will not only discuss the methods but also why this matters to the business. We will provide some essential resources to help accomplish this efficiently and consistently.