The Revenue Cycle

A revenue cycle is the process businesses use to describe the financial progression of their accoun0074 receivables from the very beginning, when they first acquire product, if they’re product based, until they get paid, if they get paid in full. As basic, the revenue cycle is strategically important as the level of sales activity is a primary driver for the organization. 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.

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.

Revenue cycle activities require access to:

• Customer data
• Inventory data
• Accounts receivable data

Revenue cycle activities:

• Process the sales order
  • Check inventory levels: Decide if sufficient stock is available to proceed with the order by comparing the goods available to the goods requested by the customer.
  • Credit check: Decide if customer is creditworthy and whether the sale should proceed by determining currently available credit capacity.
  • Create sales order: Input data, create the sales order and update sales data, once order is created advise the customer of the sales order outcome. Need to advise warehouse picking officer of goods required and advise billing that the sales order has been created.
• Pick, pack and ship the goods
  • Pick the goods: When the picking officer receives a picking ticket they go into the warehouse and pick up the goods required for the sales order.
  • Prepare for shipping: The shipping officer 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.
  • Deliver the goods: The goods are delivered to the customer.
• Bill the customer
  • Check sales completion: The billing officer checks that they have a matching shipping label for each sales order.
  • Create invoice: 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 customer’s accounts receivable account.
• Receive and record payment
  • Receive payment: The accounts receivable officer prepares a customer account statement which is sent to customer.The cashier receives payments from customer, issues receipts, and deposits the payment into the company bank account. If a payment is made electronically the cashier will download and reconcile the online amounts.
  • Record payment: The accounts receivable officer enters the details of cash received into the customer’s accounts receivable account.

REFERENCES

Considine, Brett at all. (-). Accounting Information Systems – Understanding business processes.. 04. Wiley. Singapore. ISBN: 978-0-7303-0247-6.