Course Name : M0034 Information and Business Process Year : 2011

The Revenue Cycle

Session 9-10

Learning outcome
Describe the model of business process Integrate the whole model of business process Outlines the roles of Information Technology in Business Process and Organizational activities to achieve its goals

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Learning objectives
After studying this chapter, student will able to : Describe the key objectives and strategic implications of the revenue cycle. Describe revenue cycle data and key revenue business decisions. Identify and document the primary activities in the revenue cycle and the data procedured by these activities. Analyse risks and develop control plans pertinent to the primary activities in the revenue cycle.
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REVENUE CYCLE OVERVIEW AND KEY OBJECTIVES

What are the key objectives and strategic implication of the revenue cycle? The revenue cycle is divided into two major processes: sales and account receivable.

The sales process is client facing as it is where the sales transaction takes place. The objective of the sales process is to effectively conduct, record and monitor sales of goods and services, and arrange the prompt supply of goods and services.
Following directly on from sales is the accounts receivable process, where the objective is to ensure payments for goods and services are correctly received, recorded and banked.

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REVENUE CYCLE OVERVIEW AND KEY OBJECTIVES The revenue cycle is strategically important as the level of sales activity is a primary driver for the organization. To survive long term an organization must not only remain profitable (i.e. revenues must exceed expenses), it also must be able to achieve positive cash flow. A sound, well-controlled revenue cycle can provide a competitive advantage by providing superior customer service levels, which in turn translate to opportunities to sustain higher product price levels.
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REVENUE CYCLE OVERVIEW AND KEY OBJECTIVES

An alternative form a competitive advantage is the potential to control costs that is afforded by ensuring the the revenue cycle is efficient and effective.
This translate into an opportunity to price goods and services at a level that potentially undercuts less efficient competitors and increase market share. It is important to align the objectives of the revenue cycle with the overall organization strategy that overarches all the businesses within the organization.

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REVENUE CYCLE OVERVIEW AND KEY OBJECTIVES

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REVENUE CYCLE OVERVIEW AND KEY OBJECTIVES

Documents
Customer order

Description
Allows the customers to order goods from the organization. This form can be in the form of a customers purchase order prepared by the customer or a customer order form prepared by a salesperson in the sales unit.

Order A copy of the customer order that is sent to the customer acknowledgement in acknowledgement of the customers order. The order acknowledgement is often prepared by the salesperson who receives the customers order form (or purchase order form). Credit application A form that is prepared for a new customer applying for credit. The form show the customers financial position and the customers ability to repay any debts owning.

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REVENUE CYCLE OVERVIEW AND KEY OBJECTIVES

Documents Description

Sales order

A formal document that is prepared using the customer order form. Multiple copies of the document are also prepared to initiate shipment and receive payments from customers. The sales order form is prepared by a salesperson in the sales unit.
A document that is generated by the shipping clerk in the logistics unit and attached with the goods sent to the customer. A document that is prepared for the common carriers that transport the goods to the customer. The shipping clerk in the logistics unit propares this document. A document that advises the customer what goods, in what quantity, have been shipped. The shipping clerk in the logistics unit generates this document. Sometimes a copy of the sales order from acts as the shipping notice.

Goods packing slip

Bill of lading

Shipping notice

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REVENUE CYCLE OVERVIEW AND KEY OBJECTIVES

Documents Sales invoice Description This document is sent to the customer in respect of the goods that he or she has purchased and shows the amount of sales. The billing clerk in the finance or accounting unit prepares this document.

Remittance advice A document that shows the cash receipts from a customer. This document may be prepared by the finance or accounting unit and attached as a stub with the sales invoice. The customer then returns this stub with the necessary payment to the finance or accounting unit. The customer may also send a remittance advice informing the finance or accounting unit of the nature of the payment. Customer service log
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A document that is used by customer service personnel in the marketing unit to record customer enquiries and the necessary actions (if any) undertaken to address the customers queries or concerns.

DATA AND DECISIONS IN THE REVENUE CYCLE

Revenue cycle business decisions Strategy-level decisions would include creation of policies for areas such as: Price setting requires construction of pricing algorithms, consideration of competitor price points, and an understanding of the degree of market tolerance. Sales return and warranty polices involves predicting potential volume of returns, incorporating any relevant legislation, identifying any product characteristics that make returns more or less acceptable. Provision of customer credit facilities requires consideration of the options available, and the costs, benefits and risks of each of these for the organization. Cash collection policies and procedures needs knowledge of average payment times, industry standards, customer credit policies, legal requirements.
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DATA AND DECISIONS IN THE REVENUE CYCLE

Revenue cycle business decisions Typical operational decisions include: Responding to customer inquire such as a request to purchase goods, or to return goods for credit requires consideration of customers purchase history and their accounts receivable history, in addtion to knowing the options available under the applicable policy. Responding to a request to extend credit to a particular customer requires consideration of the customers prior history and likely sales volume.

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Calculation of inventory availability requires knowledge of current levels of stock on hand, stock on order, stock promised to customers and supplier lead times.

DATA AND DECISIONS IN THE REVENUE CYCLE Selecting goods delivery method requires understanding of policy alternatives available combined with the costs and risks of the specific transaction being considered.

Determining correct cash receipt allocations for a customer payment requires access to details of invoices outstanding, and any remittance advice data supplied by the customer.

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DATA AND DECISIONS IN THE REVENUE CYCLE Revenue cycle activities require access to: Customer data Inventory data Accounts receivable data

REVENUE CYCLE
DOCUMENTATION

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FIGURE 9.3 Revenue diagrams overview

FIGURE 9.4 Revenue cycle context diagram

REVENUE CYCLE DOCUMENTATION

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REVENUE CYCLE DOCUMENTATION

FIGURE 9.5 Revenue cycle level 0 logical diagram

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REVENUE CYCLE ACTIVITIES AND RELATED RISKS AND CONTROLS

Revenue cycle activities: Process the sales order Check inventory levels

Credit check

Decide if sufficient stock is available to proceed with the order by comparing the goods available to the goods requested by the customer.

Create sales order

Decide if customer is creditworthy and whether the sale should proceed by detemining currently available credit capacity.
Input data, create the sales order and update sales data. Once order is created advise the customer of the sales order outcome. May also advise HR of any commissions payable. Need to advise warehouse picking clerk of goods required, and advise billing that the sales order has been created.

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REVENUE CYCLE ACTIVITIES AND RELATED RISKS AND CONTROLS

Revenue cycle activities: Pick, pack and ship the goods Pick the goods

Prepare for shiping

When the picking clerk receives a picking ticket they go into the warehouse and pick up the goods required for the sales order. The shipping clerk receives the goods and the picking ticket from the warehouse and packs them. A shipping label is created and after undergoing a final check, the goods and shipping label are handed over to the delivery driver. The goods are delivered to the customer.

Deliver the goods

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Revenue cycle activities: Bill the customer Check sales completion Create invoice

REVENUE CYCLE ACTIVITIES AND RELATED RISKS AND CONTROLS

The billing clerk checks that they have a matching shipping label for each sales order.

An invoice is created for each valid sale. Details of the invoice are sent to the customer, and the invoice data is recorded in the customers accounts receivable account. The cashier receives payments from customers, issues receipts, and deposits the payment into the company bank account. If a payment is made electronically th ecashier will download and reconcile the online amount.

Receive and record payment

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REVENUE CYCLE ACTIVITIES AND RELATED RISKS AND CONTROLS

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Continued to session 11

Thank you

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