Literature Review

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A Study on the effectiveness of Order Processing ,Payment Cycle and C-Form Collection system in Control Print Ltd. Name –Aparna R,FK-2545 Mentor –Dr M Appala Raju Literature Review Introduction to Project Companies often invest a great deal of time and effort in designing an efficient strategy for processing orders and ensuring timely payments.Moreover companies also pay tax on behalf of their customers for which customer companies issues C-Form.So proper collection of C-Forms from clients helps to avoid double taxation issues.Delay in their collection further affects the payment cycle and order processing.All these ensures long term working relationship with its supply chain partners.So for an organization to be successful in long term it should have a proper order processing system,time bound payment collection mechanism as well as proper maintenance and collection of C-Forms.This study focuses on understanding these in Control Print Ltd. Introduction to Company 1

Transcript of Literature Review

Page 1: Literature Review

A Study on the effectiveness of Order Processing ,Payment Cycle and C-Form Collection system in Control Print Ltd.

Name –Aparna R,FK-2545

Mentor –Dr M Appala Raju

Literature Review

Introduction to Project

Companies often invest a great deal of time and effort in designing an efficient strategy for processing orders and ensuring timely payments.Moreover companies also pay tax on behalf of their customers for which customer companies issues C-Form.So proper collection of C-Forms from clients helps to avoid double taxation issues.Delay in their collection further affects the payment cycle and order processing.All these ensures long term working relationship with its supply chain partners.So for an organization to be successful in long term it should have a proper order processing system,time bound payment collection mechanism as well as proper maintenance and collection of C-Forms.This study focuses on understanding these in Control Print Ltd.

Introduction to Company

Control Print Ltd.(CPL) was founded in the year 1991. CPL is the pioneer in the manufacturing of coding and marking solutions in India.It manufactures non-contact type coding and marking machines based on drop-on-demand inkjet printing technology and contact-type versatile electro-pneumatic imprinting machines, in technical collaboration with Avery Dennison, US, a Fortune-500 company.Its coding and marking machines are used in printing variable information like date of manufacture, batch number, maximum retail price, expiry date, etc, on packaged goods varying from consumer goods industries such as food, dairy and soft drinks to industrial products like cables, pharmaceuticals, fertilisers, etc.

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Theoretical Framework

1.1 Order Processing

Order processing is a process where customer orders are received, checked for creditworthiness then checking for product availability, and arranging for delivery to customers is done and finally billing and maintaining records of amounts due from customers is carried out.The main objective of this process to ensure that the right product reaches the right place at the right time. This is a cycle which includes recurring set of business activities and related information processing operations associated with like providing goods and services to customers and collecting their cash payments. (Romney and Steinbart 2008)

The actual approach to order processing will vary, depending on the complexity of the order, and the type of products that are being ordered. In some cases, it can be almost instantaneous. When physical goods are involved in order processing, a more complex approach is commonly employed. Customers may place orders by submitting a written request, by phone, or by using online order forms that are routed directly to the seller. Each order is then routed to a distribution center, where the type and quantity of items requested by the customer are collected and prepared for shipping. In order to facilitate this process, larger companies often operate multiple distribution centers that are strategically located, allowing for the shipment to be delivered to the customer as soon as possible. (Conjecture Corporation 2013)

Once the order is received, the customer completes the order processing by inspecting the items that are delivered. If the items are in fact what the customer ordered, and are not damaged in any way, then the order processing cycle is considered complete. Should the received items be incorrect, or are damaged in any way, then the processing is not considered complete until the issues are resolved.

Efficient and accurate order processing is essential to the success of any type of business. A truly efficient system will require that orders must be verified with customers to ensure there are no questions about what the customer wants. Once the order is verified, the items needed to fill the order accurately must be collected in a timely fashion. After collecting the necessary products, they must

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be packaged securely and delivered to the customer within the time frame promised. Failure to efficiently manage any of these tasks increases the chances of disappointing the customer, and thus losing any possibility of repeat business. (Conjecture Corporation 2013)

1.2 Payment Cycle

Once the good send by the manufacturer reaches the customer, it is his duty to collect payment on that sales so that it completes the cycle.If payments are not collected on a timely basis it can lead to defaulting which affects the working capital of the firm.Higher the number of days taken to receive the payment it increases the cash conversion cycle.From this we can determine the liquidity risk of the company.

Usually a company acquires inventory on credit, which results in accounts payable. A company can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the company pays the accounts payable and collects accounts receivable.

This cycle is extremely important for retailers and similar businesses.The shorter the cycle, the less time capital is tied up in the business process, and thus the better for the company's bottom line. (Investopedia 2010)

1.3 C – Form

Form C is issued by a registered dealer(purchaser) to seller of goods in case of Central Sales Tax so as to charge him sales tax at lesser rate and at the time of collecting the C-Form booklet from the dept, the C-form numbers will be noted down by dept in a register given to the companies. C-form contains of 3 copies. One copy for the company and remaining two copies to the creditor. The company should maintain a C-form register and mention the numbers for whom you are issuing the C-form and invoice break-up details should be attached with the respective C-form.(if demanded by the dept, you should produce the invoice copies). At the time of assessement of sales tax, you should provide the details(C-form register) to the department.One declaration in C-form can cover

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transactions of a quarter irrespective of the amount of sales that happened in that period.

In case of Interstate sales ,Central Sales Tax is taxed at 2%.Tax concessions can be availed by the dealer company if he furnishes the required proof of paying tax on behalf of the customer.Form C is the evidence provided by the buying dealer to the selling dealer so that he can avail the concessions.So companies should diligently collect and maintain C-form,only upon which the payment cycle becomes complete. (Bajpai 2013)

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Empirical Review

Article 1: How to make your order to cycle faster?

Processing orders on time and collecting payment appropriately is the life blood of business.About 7- 12 % of the revenue of working capital of the company is stuck in inefficient order processing and payment collection.Improved cash flow, reduce revenue dilution, increase customer satisfaction, and lower the cost of operations across the entire company. Information should be collected in such a way that it provides a details of its activities, key performance indicators (KPIs), and drivers, andanalyzes performance against industry best-in-class.

(Genpact 2013)

Article 2: 12 ways to improve working capital, today

There is a steady deterioration in accounts receivable of most of the companies due to inaccurate invoices,delays in collection system,inconsistent information between the involved parties:Collections, Sales, and Customers.Electronic companies face the problem of large volume of small-balance accounts and lack tools to risk-segment accounts receivable portfolio and enable automated treatments.There is also limited communication between sales and credit regarding customer credit and accounts receivable activity. (Palmer 2013)

Article 3: Selling Direct To Pharmacy: How To Prepare Your Order To Cash Function for a new sales model

This article studies the changes undergone in a pharmaceutical company when it automated its processes. Shifting from the traditional wholesale model affects the entire end-to-end process of ordering, billing, and shipping products. Of all the emerging distribution models— classical wholesale, direct to pharmacy (DTP), and restricted wholesale—the direct to pharmacy model offers the greatest advantages in terms of controlling how the product is sold and building the company’s brand. Under DTP, pharmacies will be less wary of order blockages, which means manufacturers have fewer means to force timely payments. Segmenting your customers based on payment behavior allows you to focus on high-risk accounts. (Das 2013)

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Article 4:The key to overcoming the new normal:Better performance driven by better financial intelligence

Stakeholders need to give due attention to day sales outstanding behavior,working capital forecasts,credit risk chances as well. Unlike revenue forecasts, finance reports have been inherently complex, difficult to distill,and challenging to action without delving into third-order details.In corporations they track six-month rolling averages on payment performance by accounts across business units by way of using Order to Cash softwares.

(Srivastava,2012)

Article 5:Receivables Management for the long term:Balancing Collections and Customer Service

Author states that by optimising the working capital,companies can effectively support their processes,people and tools to improve business growth.A company must not only seek payment but also think about how to get timely payments by giving discounts etc.Companies face problem of defaults not only in receiving payments but also redundancy in payments.For example in case of interstate sales companies may have already paid tax on behalf of the customers but due to improper filing of Form C there might be problems of not getting the tax amount from customers which was paid on behalf of them.Companies are mostly dependent on information technology to sort out these problems.

(Aberdeen 2012)

Article 6: Workflow Management As Means To Improve Order-To-Cash Process In Industrial Services

The major challenges in the order-to-cash process of installation services were identified to be lack of overall process understanding, deficiencies in visibility and process discipline, unnecessary costs related to high rate of order changes and rework, high level of work in progress, long order-to-cash lead time incurring slow capital turnover. In the order-to-cash process of maintenance services the major problems are related to discipline, communication of contract updates and overall process understanding.

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An order-to-cash process can be divided into three stages that are order processing,order fulfillment and payment processing. Tasks in these stages are involved with transaction making and information processing.Some causes for inefficiencies are change in customer orders after purchase order processed and sales order already generated meaning that sales order must be recreated. Disparate systems in quoting and order processing stages may cause that order structure and content might change. Sending partial shipments and making substitutions in case they are not communicated and agreed with the customer.After effects include mismatch between invoice and delivery, delayed collection of receivables.Customers willing to make bulk payments against series of invoices instead of individual payments for ongoing basis increases the risk of errors.This leads to collections department spends time on reconciling payments and invoices, delay in collecting receivables.

Implementation of an efficient system to monitor these cycles resulted in hastened order-to-cash lead time enabling more efficient use of capital; improved control and quality; better visibility and overall process understanding, more stable workload and flexibility to handle challenges deriving from disparities in customer needs.

(Hirvensalo 2008)

Conclusion

The study undertaken will give a meaningful insight into various steps in an order processing cum payment cycle,how it affects the organization and how can it be modified for improving the revenue of the company.

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