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Question:
Diva Designs has hired you to review their Accounts Receivable Department. The organisation is looking to improve efficiencies in this area. To make any recommendations, you must first understand the current process being undertaken. A transcript of your interview with the Accounts Receivable Manager is provided in Interact 2, in the Assessment folder in Resources.create a Level 0 logical data flow diagram to document the existing system for the accounts receivable process.

Answer:

Introduction
Diva design is a women’s apparel design company. It doesn’t own physical stores rather ituses online methods to sell their products. It’s a niche brand and sells high end products,which are ordered online through the website by phone or to sales representative. The factthat it is a high end product it is sold through websites because the target customer of thecompany is computer savvy and comfortable in dealing online purchases. Diva design isprimarily an apparel company but it has diversified into all other fashion and accessories andmake up to keep its customer interested. Diva design does not involve in televisioncommercials it rather uses online advertisements through Google and other such sites. Thefact that they do not engage in television commercial is because they do not have a physicalstore. The company has a strong chain to back up its online activities from salesrepresentative to accounts receivable team.

Accounts Receivable at Diva Designs
Accounts receivable of a supplier is defined as the outstanding balance that a company or a client or a customer has or the amount of money that the supplier is owed from these clients. These accounts mentioned in the AR are the ones that are deserved by a business concerned in return of a product or service that it has delivered. It essentially demonstrates a line of credit that is extended by an organisation along various periods of time ranging from days to months to even a year. Accounts receivable is typically an asset in the balance sheet of an organisation because of the obligations that the client has, to remit the cash in regard of the debt. Any legal obligation in economics is regarded as an asset for the party which is owed. If the accounts receivable of a company has any entries, it means that the supplier has made a sale but the client is yet to remit the appropriate payment in return. This essentially represents the fact that the company has accepted the IOU clause from the client.

The Accounts receivable of Diva Designs provides a facility for the credit check of every new client upon receiving an order. Before the order is accessed or further processed, it is essential to perform a risk assessment in the form of credit check to avoid dire circumstances which can later result in legal intervention. Therefore, it is important that Diva Designs provides effective risk assessment strategies before it accepts orders from the clients. This can be followed in line with the Basel II model of risk assessment that is followed by banks to perform credit checks before sanction of loans. By using internal or external ratings, the supplier can check the credit history and overall rating of the client before it accepts a bulk order to supply the products.

Diva Designs incorporate a “2 by 7 net 30” scheme on the Accounts receivable. It means that they provide a supply discount of 2% if the payment for an order is received within 7 days. The full amount is anyway due before the 30th day from the date of the invoice. It also facilitates an email notification on the 6th day to make sure the client is sufficiently informed about the discount privileges relevant to timely payment. This is a flexible strategy in the AR but it often backfires when there is imbalance in the supply-demand ratio. When there is a huge demand and stocks are limited, the scheme needs to be suspended and the criteria must be stringent. Otherwise supply failures are inevitable (Petroons et al. 2007). The AR at Diva Designs is also entrusted with the responsibility of downloading and retrieving the bank statement of the organisation. The AR team will reconcile these reports and allocate the appropriate payment records and owed accounts to the appropriate customers (Ball et al. 2013, p.1071). The AR manager or the AR supervisor does the work of solving the discrepancies within the system when there is some reconciliation from the customers in the form of short payments. The AR department handles the extraneous situations when the payment clause is forfeited by the client or customer. The department contact the customer appropriately and send them the terms and regulations against the compromise of payment agreements and thereafter forward the report to the accounting department. However, the AR should also contain a regulatory body to deal aggressively with compromise of agreement. Thereby encouraging more and more companies to make payment in order and thereby balance the supply demand cycle in times of crunch. A Level 0 logical data flow diagram of the accounts receivable department has been shown below:

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