LABORATORY GROUP

ASSIGNMENT ONLINE
PRESENTATION 01

CARLITO G GABRIEL, JR.

MBA Student
 CASH MANAGEMENT SYSTEM
Accounts Payable Treasury Payroll Accounts Receivable

Payments Investments Payments Receipts

CASH MANAGEMENT

Journals
Others Cash Transactions Bank
Statements

Ledger
 PAYMENT PROCEDURE
Selection of Invoices Documents
Purchase
Invoice BANK

File to Bank

Payment
Advice

Process Bank
Payments Statements

Open Entries
 Vendor Selection

•Negotiate longer payment terms.

•Seek opportunities to negotiate better pricing; ask
vendors to match lower prices offered to competitors
or negotiating for volume discounts.

Policies – Supplier Master Data

Accounts •Ensure all service level agreements (SLAs) are

accurately reflected in purchasing and payables
systems. Supplier master data contain product/service
Payable details, quality standards, delivery timelines, supplier
responsibilities, and any regulatory compliance
mandates that apply.
•Regularly update payment terms and the availability of
volume discounts, trade credits or other ongoing or
periodic rebates. If supplier contractual terms change
or are renegotiated, the supplier master data must
also be changed to keep pace
•Properly store supplier contracts.
Policies – 3. Contractual Review
a. Assign responsibility for data to a central master

Accounts data team that can check for completeness,

accuracy and compliance with standard terms.

Payable b. Include supplier contract clauses that pass

accountability for fines and penalties to vendors
where they are found to be underperforming in
some respect.
c. Complete periodic and timely vendor contract
reviews, in addition to reviewing such contracts
against industry standard terms.
d. Ask legal team to check vendor authorization
limits, assess the appropriateness of
contractual terms and confirm compliance with
regulations.
Policies – 4. Procurement
a. Issue POs for each new order to validate any orders

Accounts
received, lock in payment terms in advance and track
invoices against existing POs to ensure suppliers bill
in accordance with agreed-upon term.
Payable b. Maximize savings potential by exploring the viability of
any available early payment discounts, volume
rebates or trade spend initiatives.
c. Track payables outstanding by vendor and by payment
terms.
d. Set clear accounts payable metrics and adhere to
them across the organization.
e. When purchasing a new or riskier product, negotiate
longer payment terms to increase working capital or
ask to add the product to consignment stock rather
than inventory as a way to maximize liquidity and
reduce risk.
Policies –
5. Invoicing
a. Centralized processing to ensure a standardized and
consistent approach.
Accounts b. Refuse to pay inaccurate invoices (e.g. errors in
quantities, amounts, address, etc.). These should be sent
Payable c.
back to the supplier.
Process invoices on a timely basis and include a date
stamp.
d. Avoid paying invoices early; without risking key supplier
relationships, pay invoices only when they are due.
e. Conduct a management review of the AP aging listing to
determine appropriate follow-up actions
f. Develop appropriate channels and processes for
exception reporting and handling.
g. Implement an EDI system that allows vendors to submit
invoices electronically while enabling to track invoices
against their associated POs, validate and approve
payments and maintain accurate payment records
Policies –
6. Accounting and Reporting
a. Validate supplier invoices against contract terms and
their associated POs to ensure billing accuracy.
Accounts b. Improve real-time reporting capabilities by automating
reconciliations and ensuring they remain current.
Payable c. Follow up on and resolve unreconciled items on a timely
basis.
d. Have the same individuals prepare and review all
reconciliations to reduce the likelihood of overpayment or
duplicate payments.
e. Post journal entries before reporting period cut-off dates.
f. Apply payments to each invoice on the date they’re made
to maintain system accuracy.
g. Properly track all payments made, not just vendor
payments.
h. Select a method of payment that minimizes bank
charges.
 RECEIVABLE COLLECTION PROCESS
Did the Apply Early
Customer custom Yes
Send Invoice Payment
Make Create Invoice er pay
Electronically on Discount if
Purchase
time? Applicable
No
Send Finance
Make collection No Did the Assess finance
Receive and
custom Charge Invoice charge if
calls and visits er pay? applicable Apply Payment
Electronically
Yes

Print AR
Record Deposit
Reports
Accounts Receivable Policies

1. Customer credit approval

a. Set responsibilities.
b. Determine when to assess credit limits.
c. Commit to approving or rejecting credit applications within a certain time period.
d. Regularly review the credit approval process.
2. Customer Master Data
a. Centralize the master data process and identify who should ultimately manage customer data.
b. Conduct regular audits of master data to identify customers with abnormal credit limits, payment
terms, and/or discount rates.
c. Document and communicate all changes to customer data. Changes should be approved by
Finance and operations as they can have a significant impact on cash-flow forecasting.
d. Implement controls to ensure data accuracy and permit read-only access to staff to ensure they
can’t override customer data without proper sign-off.
Accounts Receivable Policies

3. Invoicing/Billing
a. Automate Invoicing/Billing. Deliver invoices electronically.
b. Ensure billing is completed in a timely basis and reports are relevant to the end-user.
c. Implement electronic billing systems.
d. Exception reports
e. Customer portal
4. Cash Application
a. Allocate payments to specific invoices rather than simply crediting the customer account.
b. Apply payments to the appropriate invoices, not just the oldest invoices
c. Apply payments to each account on the day they’re received, to maintain system accuracy.
d. Post journal entries well before system cut-off dates.
e. Reconcile accounts on a timely basis by quickly and consistently following up on unidentified cash
receipts.
Accounts Receivable Policies

5. Collection
a. Engage in frequent and consistent collection efforts.
b. Negotiate payment plans that align to corporate collection policies
c. Ensure any discounts offered benefit the company and are implemented
accurately.
d. Strengthen processes to permit accurate reporting.
e. Automate processes to avoid manual entry errors.
f. Implement lockbox system.
Other Policies

Make projections frequently. Closely monitor key cash flow data or variables, to be able
to make better, more accurate, more up-to-date projections of future cash flow.
 CAPITAL STRUCTURE
CAPITAL
Amount in millions
STRUCTURE
After carefully analyzing the
different approaches in Capital
Structures I arrived in this
PARTICULARS AMOUNT Optimal Capital Structure for the
company using the traditional
DEBT 115,680 Approach.

EQUITY 134,047

TOTAL FIRM VALUE 249,727

 CAPITAL STRUCTURE

115,680
134,047 46%
54%

DEBT EQUITY
ko = an overall capitalization rate for the firm

O Net operating income

ko =
V Total market value of the firm

O 50,674
ko =
V 249,727

O 20.29%
ko =
V
ki = the yield on the company’s debt

I Annual interest on debt

Ki =
B Market value of debt

I Annual interest on debt 2,323

Ki =
B Market value of debt 115,680

I Annual interest on debt

Ki = 2.01%
B Market value of debt
ke = the expected return on the company’s equity

E Earnings available to common shareholders

ke =
S Market value of common stock outstanding

E 48,351
ke =
S 134,047

E 36.07%
ke =
S
CAPITAL STRUCTURE
Traditional approach was chosen due to the following considerations:
1. The cost of capital is dependent on the capital structure of the firm.
2. Increasing financial leverage and the associated increase in ke and ki more than
offsets the benefits of lower cost debt financing.
3. It is combination of NI and NOI and states that initial use of debt reduces overall
cost of capital up to some level.
4. It maximizes to total value of the firm.