Periodical Stocktaking Procedure

Periodical Stocktaking Procedure

Periodical stocktaking is an effective controlling tool for identification of missing or theft inventory. Stock take can be performed monthly, quarterly or annually. Stock take procedure has been elaborated below

1.    Non Store Staff

It is better to involve non store staff for the physical count. This is necessary to achieve one of the main objective of stock take i.e. identification of mission or theft stock.

2.    Well Planned

Stock taking activity should be well planed, and staff should be given written instruction, special counting sheet before the stock take for study & understanding. All relevant people should be informed before stock take.

3.    Supervised

Stocktaking should be supervised by a senior management member, who has detailed knowledge and experience of stock take. It is to be noted that stock take is a technically and complex process and requires effective supervision.

4.    No stock Movement

The movement of stock should be completely stopped during the stock take; otherwise it would not be possible to count the stock accurately.

5.    Stock take at once

To avoid stock take should be done at once (one day). The stock take work should be divided carefully and stock must not be double counted.

6.    Stock properly recorded

Stock count should be properly recorded on pre numbered and special sheet, which has been designed for stock take.

7.    Stock count sheet Comparison

Stock count sheet must be compared with stock record. Any variation should be investigated. There may be mistakes in recording of stock or chances of theft.

8.    Reporting to management

Unanswered variation must be reported to management. Immaterial variation should also be reported as control weakness.

Characteristics of Warehouse Management

Characteristics of Warehouse Management

Inventory is one of the primary aspects of every organization in the modern world. Therefore the must be a proper management system for inventory. Characteristics of a good warehouse or warehouse management system are given below;

1.    Speed Stock Issuance & Receipt

Warehouse must be managed in way that it ensures speed issuance and receipt of inventory.

2.    Location of all items known

Location of all items must be known to the store manager or other relevant persons. It means that every item should be physically verifiable anytime by the auditor or other authorized person.

3.    Suitable Environment is must

Inventory should be kept in suitable environment. Any careless approach in this regard can bring huge losses to the organization. Suitable environment includes required temperature etc.

4.    Secured Access & Environment

Inventory should be kept in a secured environment .it must be ensured that only authorized people should handle the inventory. Unauthorized person should not have access to the warehouse.

5.    Efficient use of Space

Efficient use of space is critical for almost every warehouse; otherwise a new storage facility would be required.

6.    Stock level alert System

Store manager must be alerted for shortages (reducing level of stock). Maintenance of appropriate level of stock is very critical for operations/production.

7.    Accurate Recording

System and control must be in place to ensure accurate recording of issuance and receipt. Accurate recording is an effective tool of inventory management.

8.    Stock Handling

Appropriate mechanism should be placed within warehouse for stock handling. Improper handling can not only damage the stock, but also raises the safety issues.

9.    Safety Mechanism

Safety mechanism is also essential requirement for a good warehouse management. Safety issue can bring high fines.

Advantages of Factoring

Advantages of Factoring

Factoring is an arrangement, where a factor (third party) is responsible to manage the debtor account and collection from the sales. Factor provides immediate payment to business against credit sales for determined fees.

1.    Liquidity

Factoring arrangement improves liquidity within organization. This improved liquidity can be used advantageously by the organization in many ways, which has been explained below;

2.    Produce & Sell

Factoring arrangement provides an opportunity to produce and sell more units due to improve liquidity (depending on the demand).

3.    Boosted Sales

Sales can be boosted by lowering profit, selling price and making credit sales, because there is no problem of collection of debt. Such boost of sales will generate more funds for the organization.

4.    Stock Level

High stock level can be achieved with the help of factoring arrangement. There is no liquidity problem; therefore fund can be invested in stock.

5.    Cost Saving

Factoring arrangement saves many cost for the organization i.e. accounting staff cost to maintain sales ledger, debt collection cost etc.

6.    Profitability

Factoring arrangement can improve profitability of the organization, because with the help of factoring arrangement sales can be boosted. Even a small margin with high volume of sales can improve profitability hugely.

7.    Short investment opportunity

Additional cash can be invested in short term investment. These investments will increase the wealth of the organization.

8.    Management Effort & Time

Factoring arrangement saves the management of effort & time. This time and effort can be used by the management in other important matters.

9.    Risk of Bad Debt

No risk of bad debt in factoring arrangement. All risk of nonpayment is transferred to the factor.

Important Factors of Creditworthiness

Important Factors of Creditworthiness

Creditworthiness is customer ability to pay back the credit. Credit worthiness in simple term is credit rating of a customer for assigning credit limit. There are number of factor to be considered for determining creditworthiness of a customer.

1.    Reference

New customer may be asked to provide some reputable references about his credit ability and financial stability.

2.    Bank Statement

Bank statement is important document to judge the financial stability and creditworthiness of the customer. It is important that bank statement should be review carefully for reasonable period (at least last 6 month t0 1 year).

3.    Audit Accounts

Audit accounts & audit report can provide useful information about the customer worth. It is important that for new customer, these reports may not be available.

4.    Physical Visit

Even a brief visit to customer business location can reveal big things. Physical visit of sales staff to a new customer is highly recommended for judging its credit worthiness.

5.    Aging Analyses

Aging analyses of the existing customer is an effective tool to judge the customer record in debt payment. This information can be used for extending or reducing the credit limits of a customer.

6.    Market Rumors are Important

Market knows everything, and market rumors about the customer should not be ignored. These rumor should be give due consideration.

7.    Media can be Trusted

Media reports can provide useful information about the customer credit rating. For example a suspected fraud report about a customer requires immediate action by the sales department.

8.    Credit Rating Agency

Credit agency information about the customer is a reliable source. However, this credit rating is available only for very big customer.

Important Factors for Credit Policy

Important Factors for Credit Policy

Credit policy drafting is critical and complex issue for the organization, and there are number of factor to be considered, while deciding the policy.

1.    Administrative Cost of Collection

Debt collection is not free, and there are some costs associated with debt collection i.e. Debt collection staff cost, Travelling costs of Debt collecting staff, discount offered.

2.    Finance Arrangement

A debt extension policy will require financing, an extension in debt will lower the liquidity within organization, and organization must plan this shortage of liquidity.

3.    Cost of Finance

Financing are not free, and therefore cost of arranging finance to fill the liquidity gap shall also be considered, while drafting credit policy.

4.    Risk of non payment

Risk of nonpayment or bad debt should also be considered in drafting of accounting policy. Nonpayment will affect profitability & liquidity of the organization.

5.    Market Practice

Market or industry practice is also important factor for credit policy drafting. We have to follow the norms of market to exist.

6.    Sales Targets

Sales targets are another important factor for credit policy. It is important to remember that sales have direct relationship with profitability of the organization.

7.    Aggressive Chasing

Aggressive chasing for credit collection may reduce debtor, but customer relationship would be at stake.

8.    Discount offer

Discount offer can reduce the debtor; however discount is a costly practice. Therefore discount should be offered carefully (well calculated).