Preface xix Chapter 1 Overview of Best Practices 1 Chapter 2 How to Use Best Practices 5 Types of Best Practices 5 The Most Fertile Ground for Best Practices 6 Planning for Best Practices 7 Timing of Best Practices 9 Implementing Best Practices 10 Best Practice Duplication 12 Why Best Practices Fail 13 The Impact of Best Practices on Employees 17 Summary 18 Chapter 3 Accounts Payable Best Practices 19 Implementation Issues for Accounts Payable Best Practices 20 3 1 Pay Based on Receiving Approval Only 20 3 2 Reduce Required Approvals 25 3 3 Use Negative Assurance for Invoice Approvals 26 3 4 Designate Approval Stamp Positioning 26 3 5 Base Approvals on Supplier Invoicing History 27 3 6 Use Procurement Cards 27 3 7 Use a Ghost Card 32 3 8 Negotiate Procurement Card Rebates 32 3 9 Route All Invoices Directly to Accounts Payable 33 3 10 Split Payables Processing Based on Discounts 33 3 11 Adopt a Standard Invoice Numbering Convention 34 3 12 Automate Three-Way Matching 35 3 13 Digitize Accounts Payable Documents 36 3 14 Directly Enter Receipts into Computer 38 3 15 Have Suppliers Include Their Supplier Number on Invoices 39 3 16 Request that Suppliers Enter Invoices through a Web Site 39 3 17 Audit Expense Reports 40 3 18 Automate Expense Reporting 42 3 19 Eliminate Cash Advances for Employee Travel 44 3 20 Link Corporate Travel Policies to an Automated Expense Reporting System 45 3 21 Match Travel Bookings to Expenses 46 3 22 Centralize the Accounts Payable Function 46 3 23 Store Late Fees in a Separate General Ledger Account 48 3 24 Issue Standard Account Code List 48 3 25 Link Supplier Requests to the Accounts Payable Database 49 3 26 Shrink the Supplier Base 50 3 27 Withhold First Payment until W-9 Form Is Received 51 3 28 Automate Payments for Repetitive Invoicing 52 3 29 Install a Payment Factory 52 3 30 Eliminate Manual Checks 53 3 31 Eliminate Wire Transfers 54 3 32 Increase the Frequency of Check Runs 55 3 33 Settle Foreign Intercompany Payables 55 3 34 Have Regularly Scheduled Check-Signing Meetings 56 3 35 Implement Positive Pay 56 3 36 Incorporate Copy Protection Features into Checks 57 3 37 Avoid Acronym Payees on Checks 59 3 38 Revise Payment Terms for Electronic Payments 59 3 39 Install Advanced ACH Debit Blocking 60 3 40 Use a Signature Stamp 60 3 41 Notify Purchasing of Lower Invoiced Prices or Terms 61 3 42 Create Direct Purchase Interfaces to Suppliers 62 3 43 Install a Low-Cost Spend Management System 63 3 44 Use Blanket Purchase Orders 64 3 45 Issue a Welcome Packet to New Suppliers 65 3 46 Clean Up the Supplier Master File 66 3 47 Adopt a Supplier Naming Procedure 67 3 48 Assign Payables Staff to Specific Suppliers 68 3 49 Create Different Supplier Accounts for Different Terms 68 3 50 Review Supplier Statements for Open Credits 69 3 51 Issue Standard Adjustment Letters to Suppliers 69 Summary 69 Chapter 4 Billing Best Practices 71 Implementation Issues for Billing Best Practices 71 4 1 Avoid Missed Billings 73 4 2 Remove Unnecessary Information from Invoices 74 4 3 Mark Envelopes with Address Correction Requested 75 4 4 Do Early Billing of Recurring Invoices 75 4 5 Have the Sales Staff Review Contact Information for Recurring Invoices 76 4 6 Review Billed Hours Early 76 4 7 Issue Electronic Invoices 77 4 8 Issue Single, Summarized Invoices Each Period 78 4 9 Print Separate Invoices for Each Line Item 79 4 10 Enhance the Invoice Layout 80 4 11 Add Receipt Signature to Invoice 81 4 12 Automatically Check Errors during Invoice Data Entry 81 4 13 Proofread Invoices 82 4 14 Have Delivery Person Create the Invoice 83 4 15 Computerize the Shipping Log 85 4 16 Track Exceptions between the Shipping Log and the Invoice Register 86 4 17 Eliminate Month-End Statements 87 4 18 Reduce Number of Parts in Multipart Invoices 87 Summary 88 Chapter 5 Budgeting Best Practices 91 Implementation Issues for Budgeting Best Practices 91 5 1 Link the Budget to Key Business Drivers 93 5 2 Clearly Define All Assumptions 93 5 3 Clearly Define All Capacity Levels 94 5 4 Establish Project Ranking Criteria 95 5 5 Apply Throughput Analysis to Capital Budgeting 96 5 6 Establish the Upper Limit of Available Funding 97 5 7 Identify Step-Costing Change Points 98 5 8 Budget for Attrition 99 5 9 Budget by Groups of Staff Positions 99 5 10 Create a Summarized Budget Model for Use by Upper Management 100 5 11 Include a Working Capital Analysis 101 5 12 Use Activity-Based Budgeting 102 5 13 Incorporate Target Costing into the Budgeting Process 103 5 14 Link a Bonus Sliding Scale to the Budget 103 5 15 Use Flex Budgeting 104 5 16 Incorporate Risk Analysis into Budget Modeling 105 5 17 Automatically Link the Budget to Purchase Orders 105 5 18 Issue a Budget Procedure and Timetable 106 5 19 Preload Budget Line Items 108 5 20 Adopt Two-Stage Capital Budgeting 109 5 21 Purchase Budgeting and Planning Software 110 5 22 Reduce the Number of Accounts 111 5 23 Revise Budgets on a Quarterly Basis 111 5 24 Simplify the Budget Model 112 5 25 Use Online Budget Updating 113 5 26 Operate without a Budget 115 Summary 116 Chapter 6 Cash Management Best Practices 117 Implementation Issues for Cash Management Best Practices 117 6 1 Access Bank Account Information on the Internet 118 6 2 Automatically Apply Cash 120 6 3 Avoid Delays in Check Posting 121 6 4 Require Mailings to Mailstop Number 122 6 5 Collect Receivables through Lockboxes 122 6 6 Install Remote Deposit Capture 124 6 7 Consolidate Bank Accounts 125 6 8 Implement Physical Cash Sweeping 126 6 9 Implement Notional Pooling 128 6 10 Charge Back Treasury Fees to Subsidiaries 129 6 11 Implement Controlled Disbursements 130 6 12 Negotiate Faster Deposited-Check Availability 131 6 13 Open Zero-Balance Accounts 131 Summary 132 Chapter 7 Collections Best Practices 135 Implementation Issues for Collections Best Practices 135 7 1 Accept Check Payments by Fax 137 7 2 Clearly Define Account Ownership 138 7 3 Optimize the Collections Staff 139 7 4 Designate a Skip Tracing Specialist 140 7 5 Utilize Collection Call Stratification 141 7 6 Structure the Workday Around Prime Calling Hours 142 7 7 Base Deduction Management on Transaction Volume 143 7 8 Set Up a Periodic Payment Schedule 144 7 9 Require Customer Billing of Marketing Deductions 144 7 10 Grant Percentage Discounts for Early Payment 145 7 11 Conduct Immediate Review of Unapplied Cash 146 7 12 Outsource Collections 147 7 13 Prepare a Customer Bankruptcy Action Plan 148 7 14 Sell Your Bankruptcy Creditor Claim 149 7 15 Simplify Pricing Structure 151 7 16 Write Off Small Balances with No Approval 152 7 17 Report on Bad Debts by Salesperson 152 7 18 Post Collection Results by Collector 153 7 19 Create an Accurate Bad-Debt Forecast 153 7 20 Use Automated Clearing House Debits 154 7 21 Lock Access to the Credit-Hold Flag 155 7 22 Maintain Customer Orders Database 156 7 23 Subscribe to Special Event Notifications 156 7 24 Set Up Automatic Fax of Overdue Invoices 157 7 25 Issue Dunning Letters Automatically 158 7 26 Automate E-Mail Delivery of Overdue Invoice Information 160 7 27 Use a Collection Call Database 160 7 28 Access Up-to-Date Collection Agency Information 162 7 29 Implement Customer Order Exception Tracking System 163 7 30 Install a Dispute Tracking System 164 7 31 Report on Ongoing Customer Complaints 165 7 32 Link to Comprehensive Collections Software Package 166 7 33 Use Real-Time Cash Application Techniques 167 Summary 168 Chapter 8 Credit Best Practices 169 Implementation Issues for Credit Best Practices 169 8 1 Create a Credit Policy 171 8 2 Modify the Credit Policy Based on Product Margins 172 8 3 Modify the Credit Policy Based on Changing Economic Conditions 173 8 4 Modify the Credit Policy Based on Potential Product Obsolescence 173 8 5 Centralize Credit Risk Analysis 174 8 6 Preapprove Customer Credit 174 8 7 Subscribe to a Credit Report Database 175 8 8 Create an Internal Credit Scoring System 176 8 9 Modify Credit Application Terms to Favor the Company 178 8 10 Create a Credit Application Guidebook 179 8 11 Create a Standardized Credit-Level Determination System 180 8 12 Incorporate Collections Information into Credit Decisions 181 8 13 Require a New Credit Application if Customers Have Not Ordered in Some Time 182 8 14 Review the Credit Levels of All Customers Who Stop Taking Cash Discounts 182 8 15 Call New Customers and Explain Credit Terms 183 8 16 Issue a Payment Procedure to Customers 183 8 17 Join an Industry Credit Group 184 8 18 Refer a Potential Customer to a Distributor 185 8 19 Require Intercorporate Guarantees 185 8 20 Obtain Check Verification and Guarantee Coverage 185 8 21 Obtain Credit Insurance 186 8 22 Obtain an Export Credit Guarantee 187 8 23 Shorten the Terms of Sale 188 8 24 Insist on Lien Rights 189 8 25 Offer a Financing Program 189 8 26 Combine COD Terms with a Surcharge 190 Summary 190 Chapter 9 Commissions Best Practices 191 Implementation Issues for Commissions Best Practices 191 9 1 Automatically Calculate Commissions in the Computer System 192 9 2 Calculate Final Commissions from Actual Data 193 9 3 Construct a Standard Commission Terms Table 194 9 4 Periodically Issue a Summary of Commission Rates 195 9 5 Simplify the Commission Structure 195 9 6 Include Commission Payments in Payroll Payments 196 9 7 Lengthen the Interval between Commission Payments 197 9 8 Pay Commissions Only from Cash Received 197 9 9 Increase Commissions for Cash in Advance Payments 198 9 10 Periodically Audit Commissions Paid 199 9 11 Install Incentive Compensation Management Software 199 9 12 Post Commission Payments on the Company Intranet 200 9 13 Show Potential Commissions on Cash Register 201 Summary 202 Chapter 10 Costing Best Practices 203 Implementation Issues for Costing Best Practices 203 10 1 Audit Bills of Material 205 10 2 Audit Labor Routings 206 10 3 Eliminate High-Leverage Overhead Allocation Bases 207 10 4 Simplify Overhead Allocations 208 10 5 Assign Overhead Personnel to Specific Subplants 208 10 6 Use Perfect Standards for Material Variance Reporting 209 10 7 Eliminate Labor Variance Reporting 209 10 8 Follow a Schedule of Inventory Obsolescence Reviews 211 10 9 Eliminate the Tracking of Work-in-Process Inventory 212 10 10 Implement Activity-Based Costing 213 10 11 Implement Throughput Accounting 214 10 12 Implement Target Costing 215 10 13 Track Excess Capacity 216 10 14 Limit Access to Unit of Measure Changes 216 10 15 Report on Landed Cost Instead of Supplier Price 217 10 16 Report on Total Customer Price 218 10 17 Review Cost Trends 218 10 18 Review Material Scrap Levels 220 10 19 Revise Traditional Cost Accounting Reports 221 Summary 223 Chapter 11 Filing Best Practices 225 Implementation Issues for Filing Best Practices 225 11 1 Improve the Mailroom Interface 226 11 2 Reduce Keystroke Errors 227 11 3 Use Multiple OCR Engines for Data Capture 228 11 4 Add Digital Signatures to Electronic Documents 228 11 5 Archive Computer Files 230 11 6 Implement Document Imaging 230 11 7 Eliminate Stored Paper Documents if Already in Computer 232 11 8 Extend Time Period before Computer Records Are Purged 233 11 9 Extend Use of Existing Computer Database 234 11 10 Improve Computer System Reliability 236 11 11 Adopt a Document-Destruction Policy 238 11 12 Eliminate Attaching Back-up Materials to Checks for Signing 241 11 13 Eliminate Reports 241 11 14 Move Records Off-Site 243 11 15 Reduce Number of Form Copies to File 244 11 16 Use Carts for Portable File Storage 244 Summary 245 Chapter 12 Finance Best Practices 247 Implementation Issues for Finance Best Practices 247 12 1 Use an Investment Strategy for Short-Term Investments 249 12 2 Use Invoice Discounting 251 12 3 Sell Securities under the Regulation A Exemption 251 12 4 Sell Securities under the Regulation D Exemption 253 12 5 Set Up Supply Chain Financing 254 12 6 Obtain Cash through Crowdfunding 255 12 7 Join a Barter Network 256 12 8 Automate Option Tracking 256 12 9 Automate 401(k) Plan Enrollment 257 12 10 Grant Employees Immediate 401(k) Eligibility 258 12 11 Consolidate Insurance Policies 258 12 12 Obtain Advance Rating Assessments 259 12 13 Rent a Captive Insurance Company 259 12 14 Use Netting to Reduce Foreign Exchange Settlements 260 12 15 Install a Treasury Workstation 261 12 16 Connect to the SWIFT Network 263 12 17 Optimize the Organization of Treasury Operations 264 12 18 Hedge Foreign Exchange with Forward Exchange Contracts 265 12 19 Hedge Foreign Exchange with Currency Futures 266 12 20 Lock in Interest Rates with an Interest Rate Swap 267 Summary 269 Chapter 13 Financial Statements Best Practices 271 Implementation Issues for Financial Statements Best Practices 272 13 1 Move Operating Data to Other Reports 272 13 2 Restrict the Level of Reporting 274 13 3 Write Financial Statement Footnotes in Advance 275 13 4 Create a Disclosure Committee 275 13 5 Automate Recurring Journal Entries 276 13 6 Automate the Cutoff 277 13 7 Avoid the Bank Reconciliation 278 13 8 Defer Routine Work 279 13 9 Eliminate Multiple Approvals 279 13 10 Eliminate Small Accruals 281 13 11 Reduce Investigation Levels 282 13 12 Assign Closing Responsibilities 282 13 13 Compress Billing Activities 283 13 14 Conduct Transaction Training 284 13 15 Continually Review Wait Times 285 13 16 Convert Serial Activities to Parallel Ones 286 13 17 Create a Closing Schedule 287 13 18 Document the Process 289 13 19 Restrict the Use of Journal Entries 290 13 20 Train the Staff in Closing Procedures 291 13 21 Use Cycle Counting to Avoid Month-End Counts 292 13 22 Compress Public Company Closing Activities 293 13 23 Use Standard Journal Entry Forms 294 13 24 Complete Allocation Bases in Advance 295 13 25 Reconcile Intercompany Transactions in Advance 296 13 26 Conduct Daily Review of the Financial Statements 297 Summary 297 Chapter 14 General Best Practices 299 Implementation Issues for General Best Practices 299 14 1 Apply Run Charts to Accounting Processes 301 14 2 Apply Check Sheets to Accounting Processes 303 14 3 Apply Value Stream Mapping to Accounting Processes 304 14 4 Apply the Production Cell Layout to Accounting 305 14 5 Create a Best Practices Support Center 306 14 6 Consolidate All Accounting Functions 307 14 7 Continually Review Key Process Cycles 308 14 8 Create a Policies and Procedures Manual 310 14 9 Eliminate All Transaction Backlogs 314 14 10 Implement Process-Centering 314 14 11 Remove Clutter from the Accounting Workspace 315 14 12 Issue Activity Calendars to All Accounting Positions 316 14 13 Switch to Online Reporting 317 14 14 Track Function Measurements 318 14 15 Discuss Major Accounting Decisions with Auditors 319 14 16 Create a Contract Terms Database 319 14 17 Install a Knowledge Management System 323 14 18 Monitor Fixed Assets with Wireless Sensors 323 14 19 Create an Online Tax Policy Listing 324 14 20 Designate a Tax Liaison for Each Government Jurisdiction 325 14 21 Assign Tax Staff to Business Units 325 14 22 Outsource Tax Form Preparation 326 14 23 Submit Electronic Tax Returns to the IRS 326 14 24 Pay Federal Taxes Online 327 14 25 Create Accounting Training Teams 328 14 26 Create an Ongoing Training Program for All Accounting Personnel 329 14 27 Implement Cross-Training for Mission-Critical Activities 332 Summary 333 Chapter 15 General Ledger Best Practices 335 Implementation Issues for General Ledger Best Practices 335 15 1 Eliminate Small-Balance Accounts 337 15 2 Modify Account Code Structure for Storage of ABC Information 337 15 3 Create Alphanumeric Department/Subsidiary Codes 338 15 4 Reduce the Chart of Accounts 339 15 5 Use Identical Chart of Accounts for Subsidiaries 340 15 6 Require Senior Approval to Add Accounts 343 15 7 Use Data Warehouse for Report Distribution 343 15 8 Use Forms/Rates Data Warehouse for Automated Tax Filings 344 15 9 Use the General Ledger as a Data Warehouse 345 15 10 Restrict Use of Journal Entries 346 15 11 Avoid General Ledger Posting Bottlenecks 347 15 12 Have Subsidiaries Update Their Own Data in the Central General Ledger 348 15 13 Prescreen Construction-in-Progress Entries 349 Summary 349 Chapter 16 Internal Auditing Best Practices 351 Implementation Issues for Internal Auditing Best Practices 351 16 1 Annually Update an Internal Control Assessment of Each Business Unit 353 16 2 Issue Self-Audit Guides to Business Units 354 16 3 Recommend Business Process Improvements to Business Units 354 16 4 Track Audit Results through Business Unit Surveys 355 16 5 Train Business Unit Staff on Control Issues 356 16 6 Train New Business Unit Managers on Control Issues 356 16 7 Avoid Overauditing of Internal Audits 357 16 8 Complete All Internal Audit Work Papers in the Field 358 16 9 Create a Control Standards Manual 358 16 10 Create an Online Internal Audit Library 359 16 11 Create and Disseminate Information from a Best Practices Database 359 16 12 Outsource the Internal Audit Function 360 16 13 Schedule Some Internal Audits on a Just-in-Time Basis 361 16 14 Schedule Internal Audits Based on Risk 361 16 15 Use Workflow Software for Internal Audits 362 16 16 Implement Continuous Controls Monitoring 363 16 17 Fill Internal Audit Positions from Operations on a Rotating Basis 364 16 18 Add Specialists to Audit Teams 364 16 19 Assign an Auditor to Be a Relationship Manager with Each Business Unit 365 16 20 Assign Internal Auditors to System Development Teams 366 16 21 Create an Auditor Skills Matrix 366 16 22 Use Excel for Continuous Auditing 367 16 23 Support the Outside Auditors 368 Summary 368 Chapter 17 Inventory Best Practices 369 Implementation Issues for Inventory Best Practices 369 17 1 Audit Bills of Material 372 17 2 Conduct a Configuration Audit 373 17 3 Modify the Bills of Material Based on Actual Scrap Levels 374 17 4 Review Inventory Returned to the Warehouse 374 17 5 Modify the Bills of Material for Temporary Substitutions 375 17 6 Use Bills of Material to Find Inventory Made Obsolete by Product Withdrawals 376 17 7 Compare Open Purchase Orders to Current Requirements 377 17 8 Reject Unplanned Receipts 377 17 9 Obtain Advance Shipping Notices for Inbound Deliveries 378 17 10 Eliminate the Receiving Function 379 17 11 Use Standard Containers to Move, Store, and Count Inventory 380 17 12 Use Different Storage Systems Based on Cubic Transactional Volume 381 17 13 Organize the Warehouse by Storage Zones 381 17 14 Optimize Inventory Storage through Periodic Location Changes 382 17 15 Maximize Vertical Storage Space 382 17 16 Use Narrow Aisles in Manual Putaway and Picking Zones 383 17 17 Eliminate the Warehouse 384 17 18 Audit All Inventory Transactions 385 17 19 Compare Recorded Inventory Activity to On-Hand Inventories 386 17 20 Eliminate the Physical Count Process 387 17 21 Cycle-Count Based on Usage Frequency 389 17 22 Lock Down the Warehouse Area 389 17 23 Move Inventory to Floor Stock 390 17 24 Segregate Customer-Owned Inventory 391 17 25 Streamline the Physical Count Process 392 17 26 Track Inventory Accuracy 394 17 27 Train the Warehouse and Accounting Staffs in Inventory Procedures 395 17 28 Initiate Warehouse Staff Self-Auditing 396 17 29 Verify That All Receipts Are Entered in the Computer at Once 396 17 30 Record Inventory Transactions with Bar Codes 397 17 31 Record Inventory Transactions with Radio Frequency Communications 398 17 32 Track Inventory with Radio Frequency Identification (RFID) 399 17 33 Eliminate All Paper from Inventory Transactions 400 17 34 Install a Kanban System 401 17 35 Eliminate All Transaction Backlogs 402 17 36 Immediately Review All Negative Inventory Balances 403 17 37 Reduce the Number of Products 403 17 38 Reduce the Number of Product Options 404 17 39 Design Products with Lower Tolerances 404 17 40 Obtain Direct Links into Customer Inventory Planning Systems 405 17 41 Adopt Just-in-Time Purchasing 406 17 42 Shift Raw Materials Ownership to Suppliers 407 17 43 Drop Ship Inventory 408 17 44 Reduce Safety Stocks by Accelerating the Flow of Internal Information 408 17 45 Reduce Safety Stock by Shrinking Supplier Lead Times 409 17 46 Reduce Safety Stock with Risk Pooling 410 17 47 Use Variable Safety Stocks for Fluctuating Demand 410 17 48 Cross-Dock Inventory 411 17 49 Use Overnight Delivery from a Single Location for Selected Items 412 17 50 Focus Inventory Reduction Efforts on High-Usage Items 412 17 51 Eliminate Redundant Part Numbers 413 17 52 Standardize Parts 414 17 53 Identify Inactive Inventory in the Product Master File 415 Summary 415 Chapter 18 Payroll Best Practices 417 Implementation Issues for Payroll Best Practices 418 18 1 Disallow Prepayments 420 18 2 Create Employee Self-Service for Payroll Changes 421 18 3 Minimize Payroll Deductions 422 18 4 Prohibit Deductions for Employee Purchases 423 18 5 Post Forms on an Intranet Site 423 18 6 Avoid Job Costing through the Payroll System 424 18 7 Use Computerized Time Clocks 425 18 8 Use Exception Time Reporting 426 18 9 Install Automated Timesheet Reminders 427 18 10 Reduce the Number of Pay Codes 427 18 11 Use Biometric Time Clocks 428 18 12 Track Time with Mobile Phones 428 18 13 Install Additional Time Clocks 429 18 14 Issue Electronic W-2 Forms to Employees 429 18 15 Transfer Payroll to Debit Cards 430 18 16 Use Direct Deposit 432 18 17 Automate Vacation Accruals 434 18 18 Consolidate Payroll Systems 434 18 19 Create a Payroll Call Center for Employees 435 18 20 Eliminate Personal Leave Days 437 18 21 Link Payroll Changes to Employee Events 437 18 22 Install Manager Self-Service 438 18 23 Link the 401(k) Plan to the Payroll System 440 18 24 Link the Payroll and Human Resources Databases 440 18 25 Minimize Payroll Cycles 441 18 26 Minimize Off-Cycle Payrolls 442 18 27 Create a Year-End Payroll Processing Checklist 443 18 28 Electronically Verify Employee I-9 Information 444 18 29 Reduce Taxes with the Common Paymaster Rule 445 18 30 Outsource the Payroll Function 445 18 31 Post FAQ Answers and Issue a Payroll Orientation Brochure 447 Summary 448 Appendix: Summary of Best Practices 449 About the Author 465 Index 467