Question

The basic business activities performed in the revenue cycle are sales order entry, shipping, billing, cash collections. Please describe these activities.

Answer 1

Revenue cycle are activities that provide goods and services to customers are collect cash as payments from sales. The basic business activities performed in the revenue cycle are:

Sales order entry: This is done by sales department. They typically report to VP marketing. There are various steps in sales order entry process. These are:

• Taking customer order: Orders are received from customer on sales order document either in stores, by email, on a website, by phone, or by salesperson in the field. The data in sales order document should be entered by the customer. Sales order document contains items ordered, quantity, prices and salesperson. Orders made by customer can be sent directly to the warehouse. This increases efficiency and accuracy.
• Checking customer credit: Before making credit sales customer credit worth needs to be analyzed. A credit sales needs to be approved before any order is processed. Credit limits vary from customer to customer. It depends on past history of customer and there ability to pay there dues. There are two types of credit authorization:

1. General Authorization:This is for the existing old customers. These are the customers who are below there credit limit but don't have past due balances. Under this customers accounts and status is verified and accordingly action is taken.
2. Specific Authorization: This is required for new customers, or for those who have past due balances, or for those who are placing order more than their credit limit. This authorization is done by credit manager.

• Check availability of inventory: This is the next step after the credit is approved. This step is done to ensure whether their is sufficient inventory to complete customer order. Delivery date is also decided based on availability of inventory. In case of sufficient inventory, billing department are notified about the sale. Customers are also notified regarding the same. In case inventory is not enough to fulfill the order a back order is initiated.
• Respond to customer inquiries: This step can occur either before or after the sales. This step is very important success of a company. Many companies use Customer Relationship Management to support this process.

Shipping: The second basic activity of revenue cycle is shipping. This activity consist of two steps: (a) picking and packing (b) shipping the order. Picking is done by warehousing department while packing and packing and shipping is done by shipping department. A picking ticket is printed when order is received. This ticket states which items need to be packed which is further packed and transferred to shipping department.

Billing: Billing is the third activity of revenue cycle. It involves invoicing and updating accounts receivable. Timely invoicing is very crucial. Billing can be defined as an information processing activity. Basic document in this step is sales invoice . It may be in paper or by EDI. Updating accounts receivable function contain two steps i.e. debiting customer accounts when sale is made and crediting customers accounts when payment is made. Adjustments to customer accounts are made in case of returns, damaged goods allowance, and unrecoverable write-offs.

Cash Collections: This is the final step in revenue cycle. Cashier handles the amount received from customers and deposits them in the bank. A proper control is needed in this step. Various methods of collection from customers are lock boxes, electronic fund transfer, credit cards, electronic bill payment.