Ownership Thinking by Hams Brad

Author:Hams, Brad [Hams, Brad]
Language: eng
Format: epub, pdf
Publisher: McGraw-Hill
Published: 2011-08-02T14:00:00+00:00

• There were inaccuracies in the invoice, or perhaps the invoice was sent to the wrong person.

• The product or service was not satisfactory to the customer; there were quality issues.

• It was a partial shipment of product, or a service was not completed on time.

■ To determine the amount of cash brought into the business by reducing average collection days by 10, monthly sales are divided by the number of days in the month to determine how much would be collected each day if collections were made daily and in equal installments ($4,200,000/30 = $140,000). This is then multiplied by the reduction in collection days, which is 10. So, the answer to the question is $1,400,000 ($140,000 × 10). The cash could be used to retire debt, take discounts from suppliers, purchase new equipment, and so on. All of these would affect the Income Statement.

■ A variety of things could be done to improve the situation, most of which would be in alignment with how different departments affect collections, as noted in our earlier discussion.

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