Central Manufacturing Inc

Friendly Systems Consultants

Memo

To: Kim Debe, Vice President of Accounting, Central Manufacturing Inc

From: Ward Systems, Chief Consultant, Friendly Systems Consultants Ltd

CC: Jim Wdeve, Chief Accountant, Central Manufacturing Inc

Date: 1/30/2006

Re: Accounts Receivables Management at Central Manufacturing Inc

Introduction

This report presents some preliminary results of a study currently being conducted by Friendly Systems Consultants Ltd. The study is an analysis of an Accounting Information System currently used by Central Manufacturing Inc. The scope of the study is the customer account management business process. We conducted structured interviews of accounting staff and the management team and reviewed the methods and procedures utilized by the company in order to manage their Accounts Receivable. Our observations are as follows.

Identified Issues/Problems

The president of the company is concerned with the bad debt losses and the fact that a large number of accounts are more than 90 days overdue. Late collections, large number of overdue accounts, and bad debts appear to be the symptoms of inadequate Accounts Receivables Management.

There were several findings of concern with respect to the customer account management procedures currently used by Central Manufacturing Inc. In order to conduct the thorough investigation, the following information is required:

- Is there a defined credit policy?

- Who is responsible for customer billing and collection functions?

- Does company invoice its customers promptly and sends statements regularly?

- Does company use an approved Customer Database?

- What kind of information can be found in the Customer Database?

- Who has the access to the financial records / Customer database? Who can update the information?

- Who is involved in the credit-granting function? What are the criteria used?

- Who is responsible for authorizing the credit limits for new customers?

- Does the company perform customer credit check?

- What happens if the credit limit is breached?

- How frequently the overdue account holders contacted?

- Who is responsible for contacting customers? Only Mr. Wdeve?

- Is telephoning its customers an only way that the company uses to collect on overdue accounts?

- What types of reports the current system is capable of producing?

- How often the A/R Aging reports generated and reviewed?

- How often the information on the status of A/R presented to the management?

- What are the strengths and weaknesses of the existing system?

In this situation the careful collection and analysis of the information is critical for the problem identification and decision making process. We need to evaluate the current policies and procedures used to manage the Accounts Receivables before correcting the