In the order to cash cycle, the “completed invoice to cash” stage is by far the most important. Your resource is used and the longer it takes to be paid the more funding your organization requires. Early in my career, I was a credit controller for a medical machine provider (Heart Monitors, etc). These were sold with a trade in. The issue that arose was that the old heart monitor could not be returned the same day as the new one arrived (it would have been still been in use by a patient!). These often got forgotten and invoices remained unpaid for months.
When I came to follow up for payment, the customers had the invoice on hold waiting for the credit note for the trade in. So, first thing was to arrange for the unit to be found and returned. Issuing the credit note and arranging payment was easy after that. So instead of chasing cash, I chased returns and credit notes. This brought the days outstanding down from over 180 to less than 35. So the importance of getting the cash received applied to the correct invoice should not be underestimated.
I always thought that AR cash allocation was easy. You entered your receipt and went to the allocation screen and selected the invoices you’re going to allocate the receipt to. Easy!
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