The final step in the revenue cycle is cash collection. The revenue cycle is a series of business activities and related information processing activities that are repeated by providing goods and services to customers and collecting cash as payment for sales.
The goal of the revenue cycle is to provide the right product at the right place and time at the right price. While other objectives of the income cycle are:
- All transactions have been properly authorized.
- All recorded transactions are valid (actually happened).
- All valid, and authenticated, transactions have been recorded.
- All transactions are recorded accurately. Assets are protected from loss or theft.
- Business activities are carried out efficiently and effectively.
As we know, of course this is related to the accounts receivable function which must be able to identify the source of money transfers from anywhere. For example, the cashier, for example, reports to the treasurer, handles money transfers from customers and keeps them in the bank.
Since cash and customer checks are easy to steal, it is important to take appropriate action to reduce the risk of theft. This means that the account receivable function should not have physical access to cash or checks.
One way to identify the source of remittances is to send two copies of the invoice to the customer and ask him to return one of these copies along with the payment.
However, as technology progresses, there are other ways to keep money transfers from customers, namely by:
Use of a lockbox with a bank
Lockbox is the postal address that customers go to when they send their money. The banks involved take the checks from the post box and deposit them into an account.
Electronic funds transfer
(EFT), which is a way for customers to send money electronically to the company’s bank and thereby eliminate delays associated with payment times on the mail system. EFT also reduces the time lag before banks provide deposited funds to companies.
Financial electronic data interchange (FEDI) solves the problem by integrating the exchanges of funds (EFT) with the exchange of remittance of funds (EDI). Customers send money transfer data and funds transfer instructions simultaneously. Then the seller receives both information simultaneously. FEDI is equipped with an automation system for the billing and cash refund processes.
Thus, it can be seen that the main purpose of cash collections is to protect customer remittances. This can be done with segregation of duties which is the most effective control procedure to reduce the risk of theft. In the separation of duties, there are 3 things that must be separated.
- Handles cash or checks and posts money transfers to customer accounts.
- Handles cash or checks and authorizes credit memos.
- Handles cash or checks and reconciling bank statements.
By doing good control, it can reduce the risk of fraud in unexpected cash and can control both the estimated inflows and outflows of cash.