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Services rendered invoice template word for Finance

this is an invoice and this is a CFO his company sells Luxury Perfumes to retailers across the United States the company sells on credit meaning I ship you the goods today and then I allow you 15 days let's say to make payment how does the CFO make sure that the company gets paid on time with the least possible risk he is a competent CFO so he would rely on a couple of things he will Implement a set of standard procedures such as a Dunning process and automated reminders and he will perform monthly analytical procedures to check the process is working smoothly I am not in danger Skyler I am the danger if you are an aspiring CFO this video is going to teach you everything you need to know about managing accounts receivable like a rockstar CFO let's go if you are new to the channel welcome my name is Bill Hannah I'm the financial controller I'm a licensed CPA in the great state of New York and I've been working as a controller in New York City for the last 10 or 11 years and this channel is all about giving you my experience as a controller so it's going to be Finance and Accounting topics uh if you're interested go ahead and hit the Subscribe button right now if you're an accountant and aspiring to become a controller you're going to want to check out my controller Academy course I'm going to leave a link Down Below in the description with a coupon code so you can get a discount for being a subscriber on this channel so today's video agenda and there is a lot to cover here so I'm going to leave uh chapters down below so you can click through the chapters that you want uh but we'll be looking at the set of standard worldclass procedures for accounts receivable and then we'll whip out an Excel file and I'm going to take you by the hand and show you how to perform a few simple kpis that will tell you whether your world is falling apart or not all right so let's run through the set of best practices when a company is first starting out it's easy to just create invoices in Excel or Word document and then email it manually to your customers but as the company grows say Beyond $1 million in annual sales you're going to want to have this process automated in our case our CFO here relies on an automated process in the Erp software that generates an invoice based on an online communication from the warehouse after each shipment of perfumes is made look when you negotiate an agreement with a new customer they're almost always going to negotiate long payment terms so they're going to want to uh negotiate 45 or 60 days as a payment term and you on the other side as a CFO of the company you want to negotiate the shortest term possible so you're going to want to push for 10 or 15 days so that maybe you end up somewhere in between maybe 15 days or 30 days at most I need my money I need my money but if you leave it uh to the will of the customer they're going to push you in a corner and try to get 45 or 60 days sometimes as a payment term which is going to be terrible for your working capital and cash flow so you're going to want to be aggressive in pushing for a short time window or payment term Dunning is a 17th century term describing the process of business owners communicating with customers and an effort to collect money owed for goods and services is provided this collection process involves escalating degrees of intensity so the intensity goes from hey thanks for doing business with us you have 15 days to make payment and then after a couple of weeks the communication goes yo you're a little bit late here you need to make this payment ASAP and then still if the customer is not paying you you want the communication tone to escalate even further to something like if I don't see cash by tomorrow my collection agency is going to get to know your real good but also remember remember the key here is that you don't want to be doing this process manually you want this to be set automatically to run uh from the point the invoice goes out a reminder to go out in two weeks and then two weeks after that and keep escalating in tone you want that to be automated in your ARP software or the building uh platform that you're using but I also would love to hear from you if there is something else that you or your CFO is doing for AR to have a best-in-class process for accounts receivable let me know in the comment section below I would love to know and everybody is watching the video will be looking at the comment section to see if there's any other advice on this subject our CFO asks the billing team to send them a weekly AR aging schedule a weekly AR review provides Clarity and Direction and it is well worth the half an hour investment each week to review the AR aging and look at the notes from AR team and find out what are the paying points and which customers aren't paying so that you can take the necessary steps if needed all right so now that we cover the standard procedures you want to have around accounts receivable let's jump into my computer here and I want to show you a couple of simple kpis that you can run periodically to show you whether everything is running smoothly or whether you're falling behind so we have a set of financial statements for the company for the first quarter of 2024 uh we have the income statement including Revenue cost of goods uh balance sheet accounts that we're going to need in calculating this kpis so this file is going to be uh attached Down Below in the description so go ahead and download it so you can calculate the kpis that we'll do here um and there is going to be a solution key tab where you can look up your answer to see that you are on the right track so let's go ahead and calculate the kpis for accounts receivable management the first kpi is going to be accounts receivable to sales ratio and for this we're going to need to have our accounts receivable pulled from the uh financial statements as well as our revenue and the ratio as you can imagine is going to be by dividing accounts receivable divided by Revenue in this case it's a 140% in the month of January and if you think about it this percentage is real high because if you are collecting in about 30 days which is the length of the month usually the amounts of your AR is going to be similar to your amount of sales your sales is going to be close to your amount of AR but as your slowdown on collection if your AR is in trouble you're going to find this ratio growing bigger meaning that your AR balance is bigger than your sales for the month and that's what we're seeing here is that for January the ratio is 140% which is a very worrisome ratio uh if we drag that to February we'll see that the number improved a little bit to 134% um and March it improved a little bit further to 128% but typically for an efficient process you want this ratio to be below 100% right meaning that your AR is smaller than your sales meaning that you're collecting fast on your sales for our second kpi on checking on the health of accounts receivable we're going to be pulling two kpis and comparing the two numbers together first one is going to be Day sales outstanding and the second is going to be days payable outstanding or DPO uh the reason we're doing this is because we want to see the number of days that it takes us to convert our sales into cash and make sure that that number of days is less than the number of days it takes us to convert from when we buy supplies from our suppliers uh into actual payment to suppliers so we want to be collecting faster and paying out to suppliers slower um so to calculate DSO the formula is going to be by uh dividing uh AR balance at the end of the period divided by the amount of credit sales in the period which is our entire Revenue our all of our sales in this case is credit sales and multiplying that by the number of days in the period so let's go ahead and calculate so we'll say equal parentheses AR balance divided by Revenue multiply that by the number of days in the period and we'll get 43 days now that's 43 days means that it takes us 43 days to convert our sales into cash in the bank uh if we drag that across we'll see that we have a trend that goes slightly down uh in the in the month after that now we'll do a similar calculation for DPO or days payable outstanding and the formula is a little bit similar it takes the accounts payable balance at the end of the period divided by cost of goods sold and multiply that by the number of days in the period so we'll say equal accounts re accounts payable rather balance uh divided by cogs or cost to Goods sold and multiply that by the number of days in the period and we get 53 days uh we drag that across and we see a trend in our uh DPO so in this case here we have uh less uh DSO than we have DPO which is a good sign so even though our AR seems to be slow in collection but it is still lower than our DPO uh so you want that uh difference between the two DSO and DPO to be as big as possible uh ideally you want this number here to be 30 days in DSO and you want the DPO to be maybe something like 60 days as long as you're paying your suppliers within the payment terms that you have with them if you enjoy the video or learn something new from it you know what to do go ahead and share it with a friend or someone who will benefit from it and if you liked it also give it a big thumbs up so that YouTube can distribute it to as many people as possible and I'll see you in the next video e