Four basic business activities are performed in the revenue cycle: I. II. III. IV.

Sales order entry Shipping Billing Cash collection

SALES ORDER ENTRY Sales order entry is performed by the sales order department. The sales order department typically reports to the VP of Marketing. Steps in the process include: I. Taking the customers order

Many different ways can use such as phone, store, mail, web and so on. Optical scanners can convert hardcopy to electronic data or customers enter data. Choice boards allow customers to customize products to their needs (e.g., Dell). Using EDI (EDINT) for orders or to allow vendors to manage inventory (vendor managed inventory (VMI).Software can be used to optimize selling prices. II. Checking and approving customer credit.

Most business-to-business sales are made on credit. Credit sales should be approved before they are processed. Each customer will have a credit limit. Credit limit is the maximum allowable account balance for each customer based on the customers past credit history and ability to pay. III. Checking inventory availability

The next step is to determine if there is sufficient inventory available to fill the order. When there are not sufficient items on hand to fill the customers order, a back order is created. Once the item(s) become available, a picking ticket is created. The picking ticket authorizes the inventory control function to release merchandise to the shipping department. The accuracy of inventory records is important because customer may become justifiably upset when unexpected delays occur in filling their orders. IV. Responding to Customer Inquiries

Customer services is so important that many companies use special software packages, called Customer Relationship Management (CRM) systems, to support this vital process. The goal of customer relationship management is to retain customers. This is important because a general

marketing rule of thumb is that it costs at least five times as much to attract and make a sale to a new customer as it does to make a repeat sale to an existing customer.

SHIPPING The second basic activity in the revenue cycle is filling customer orders and shipping the desired merchandise. Shipping consists of the following two steps: I. Picking and packing the order The picking ticket printed by sales order entry triggers the pick and pack process. Some of the investments companies have an automated warehouse system which includes computers, bar-code scanners, and conveyer belts and communications technology. Some warehouses have no peopleuse robots. Radio-Frequency Identification (RFID) is replacing bar codes. The RFID tag eliminates the need to align items with scanners; instead, the tags can be read as the inventory moves throughout the warehouse II. Shipping the order The shipping department compares the physical count of inventory with the quantities indicated on the picking ticket and with the quantities indicated on the copy of the sales order that was sent directly to shipping from sales order entry. The packing slip lists the quantity and description of each item included in the shipment. The bill of lading is a legal contract that defines responsibility for the goods in transit. If the customer is to pay the shipping charges, the copy of the bill of lading may serve as a freight bill, to indicate the amount the customer should pay to the carrier. Another important decision concerns the location of distribution centers. RFID systems can provide real-time information on shipping status and thus provide additional value to customers. BILLING Involves two separate but related tasks: I. II. Invoicing: The document created in the billing process is the sales invoice, which notifies customers of the amount to be paid and where to send payment. Updating A/R: The accounts receivable function uses the information on the invoice to debit the customers accounts for credit purchases and credit the customers accounts when payment is received.

Under the open-invoice method, customers normally pay according to each invoice. The customer is asked to return a copy of the invoice when mailing in their payment. This return copy is referred to as the remittance advice. Under the balance-forward method, customers

typically pay according to the amount shown on a monthly statement. A monthly statement lists all transactions, including both sales and payments.

CASH COLLECTION The final step in the revenue cycle is cash collections. The cashier handles customer remittances and deposits them in the bank. A remittance list provides the names and amounts of all customer remittances, and sends it to accounts receivable. Imaging technology can be used to improve the efficiency of processing customer payments. A lockbox is a postal address to which customers send their remittances. The participating bank picks up the checks from the post office box and deposits them to the companys account. Under an electronic lockbox arrangement, the bank electronically sends the company information about the customer account number and the amount remitted as soon as it receives and scans those checks. With electronic funds transfer (EFT), customers send their remittances electronically to the companys bank and thus eliminate the delay associated with the time the remittance is in the mail system. EFT is usually accomplished through the banking systems Automated Clearing House (ACH) network.