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ManagementofAccountsReceivableDecember1997ContentsPrefaceIntroductionTheAccountsReceivableProcessRe-EngineeringAccountsReceivableRiskManagementUseofAdvancedTechnologyDebtCollectionProcessesPerformanceMeasurementAppendixPrefaceThisguideaccompaniestheAuditor-General’sAuditReportNo.29,ManagementofAccountsReceivableintheCommonwealth.Itisintendedtoprovideanoverviewofthecurrenttrendsandbetterpracticeapproachesthatarebeingadoptedbyorganisationsinmanagingaccountsreceivable.Inthecommercialworldthewayinwhichorganisationsmanagetheiraccountsreceivablehassignificantimplicationsforthefinancialhealthofthoseorganisations.Thiscreatesanimperativetoensurethemanagementofreceivablesisbothefficientandeffective.Thepracticesusedincommonbusinessprocessessuchasaccountsreceivablemanagementhaveuniversalapplicationandarenotindustryspecific.Inthisregardtherearelessonstobelearnedbyothersfromthepracticesfollowedbyorganisationsforwhomaccountsreceivableisacorebusinessprocess.ThebetterpracticesdiscussedinthisguidearethereforerecommendedforconsiderationbyCommonwealthgovernmentagencies.Notallofthepracticesoutlinedinthisguidewillsuiteachagency’scircumstances,however,itisconsideredthatmostagencies,whichderiverevenueonsaleofgoodsandservicesoncreditterms,willbenefitfrombenchmarkingtheircurrentpracticesagainstthosedetailedintheguide.IntroductionEffectivemanagementofaccountsreceivablepresentsimportantopportunitiesforagenciestoachievestrategicadvantagethroughimprovementsincustomerservice,cashmanagementandreductionsincosts.TheprimaryobjectiveofaccountsreceivableintheCommonwealthpublicsectoristocollectmoniesdueandtoassistinmeetingcashflowrequirements.Aneffectiveaccountsreceivablefunctioncanassistinachievingthedesiredcashflowoutcomethroughthetimelycollectionofoutstandingdebts.Allagenciesalsohaveanobjectiveofcontinuallyimprovingcustomerservice.Alargenumberofagencieswhichoperateasbusinessesarerequiredtoperformpublicservicesunderafullorpartialcostrecoveryarrangement.Effectiveaccountsreceivablemanagementcanassistagenciesimprovecustomerservicethroughprovidingtimelyinformationoncustomerrequirementsandbymakingdealingwiththeagencyaseasyaspossible.Allgovernmentagencies,includingthoseoperatinginamonopoly,arerequiredtodemonstratecontestability-thatisdeliveryofahighqualitystandardofserviceatacostthatiscomparabletoprovidersofsimilarservicesoperatinginsimilarenvironments.Improvementsinaccountsreceivablemanagementwhichreducethecostofcollectingmoniescanimproveanagency’sabilitytodemonstratecontestabilityandaccountability.ImportanceofOrganisationalCultureAninternationalreceivablesmanagementbenchmarkingstudycommissionedbytheAustralianTaxationOfficehashighlightedtheimportancethatorganisationalculturehasinthesuccessfulmanagementofaccountsreceivable.Thestudy,whichinvolvedthesurveyoffiveinternationaltaxationagenciesandeightdomesticorganisationsforwhichaccountsreceivableisastrategicissue,indicatedthatmanagementattitudesneedtosupportpracticesforminimisationofdebt.Allagenciesshouldadoptaculturewherebystaffareencouragedtoobtainpayment,whererequired,andnotjustfocusonprogramorservicedelivery.TheAccountsReceivableProcessAtypicalaccountsreceivableprocessismappedbelow.Theprocesscommenceswithareceiptofacustomerorderandendswiththecollectionorwriteoffofadebt.Financialmanagementfunctionssuchasaccountsreceivablehavebeentraditionallyviewedastransactionprocessingactivities.AninternationalbenchmarkingstudyreferredtointhePayingAccountsBetterPracticeGuideissuedbytheANAOinNovember1996indicatedthatupto65percentoftimewasspentonnon-valueaddedactivitiesacrossallgovernmentandindustrysectors.Thestudysuggestedthattheeliminationorreductionofnon-valuetaskscanbeeffectedthroughbetterworkpracticesandautomationofprocesses.Thiscanbeachievedbyanalysingcurrentprocessesandredesigningthemtoremoveasmuchmanualinterventionaspossible,reducingrekeyingandappraisalactivitiesandminimisingoperatorerror.Animportantpartofthisanalysisisaformal,structuredriskassessmentwhichidentifiesandmeasuresexposuresassociatedwiththeaccountsreceivableprocess.Thefollowingdiagramhighlightstheopportunitiesavailableforimprovementthroughbetterpractices.Significantadvancesinaccountsreceivableperformanceandprocessefficiencyareavailabletoagenciesthroughthefollowingfivecomplementarykeymanagementinitiatives:·Re-engineeringaccountsreceivable·Riskassessment·Useofadvancedtechnology·Debtcollectionprocesses·PerformanceMeasurementThesemattersareaddressedinthefollowingchapter.Re-engineeringaccountsreceivableSomelargeprivatesectororganisationshaveachievedrealcostreductionsandperformanceimprovementsbyre-engineeringtheaccountsreceivableprocess.Re-engineeringisafundamentalrethinkandre-designofbusinessprocesseswhichincorporatesmodernbusinessapproaches.Thenatureofaccountsreceivableissuchthatdecisionsmadeelsewhereintheorganisationarelikelytoeffectthelevelofresourcesthatareexpendedonthemanagementofaccountsreceivable.Anillustrationofthispointistheextraeffortthatmustbeputintodebtcollectionwherecreditpolicyispoorlyadministeredortoofreelygiven.Thestronglinkagesbetween