Just as the year is broken into seasons or cycles, the accounting side of your business is also broken into cycles. The first cycle is known as the sales cycle.
This cycle is something that is often pretty obvious to most people.
However, but many business owners do not complete the cycle, often failing to complete one of the three steps listed below:
- Invoice: Too many businesses “forget” this step. You may think I am talking codswallop but it happens.
- Payment: Again codswallop, right? Too many businesses go bankrupt because they do not follow up on outstanding payments. They say that it is ‘only a small amount so it is fine’. However, the small numbers add up quickly. Even 10 outstanding invoices of R500 means R5 000 that is owed to you. That is not something to be forgotten about.
- Payment capture: This is often the most common part of the cycle that is missed. You issue an invoice, receive the payment and think the work is done. Well, umm, NO! If you do not capture the payment, it looks as though the client still owes you money. When you ask them about the outstanding monies that have in fact been paid, they will question the credibility of your business. They are unlikely to return to you if you do this repeatedly.
Problems with the sales cycle
This is not always a perfect cycle from start to finish. If only it was!
Here is what possibly could alter the flow of the cycle:
- Delivery not made in full: This would probably result in a credit note, thus altering the invoice amount.
- Short payment: This would make the capture a little more time consuming, but not too much.
- Slow payment capture: When payments are not captured in good time, it is likely to have a ripple effect on your business. Most importantly, the monies reflected as outstanding will not be correct.
- Payment not received: It’s not hard to imagine the consequences of this – it will negatively impact the payments and payroll cycles of the business. Without stock, you cannot make sales, which is clearly NOT good for your business.
This is a fairly simple cycle but it can get complex if the individual items are not done correctly or in the correct order.
Most likely, it will have an impact on how the business operates and can, at worst, result in the business closing its doors.