Useful Advices - Business

Part Two of Cash to Cash Cycle Series

Next: Sales

We’ve already found $250,000…so let’s find another $250,000…

Laying the Foundation

Last week, we raised the question: what would your business do with $1,000,000? To lay the foundation we introduced in

According to USFDA, a combination product is one composed of any combination of a drug and device; biological product and device; drug and biological product

ventory as the first of four areas that will lead toward our million dollar goal. And you saw exactly how to achieve the first $250,000 in cash savings by avoiding delays with an increase in velocity, as well as an increase in discipline and competency. But how

; or drug, device, and biological product and fixed dose combination would include two or more combinations of drug.

Examples of combination products may in

exactly? With time – as you saw with inventory and as you’ll see this week.

Tackling Accounting Procedures

Let’s continue that crucial theme of time with another major source on your balance sheet – specifically, accounts receivable (A/R). If you have $500,00

lude drug-coated devices, drugs packaged with delivery devices in medical kits, and drugs and devices packaged separately but intended to be used together.

0 or more in accounts receivable then STOP! We have found it again.

Reducing Average Days Collection

Why? Because if we focus on reducing your average days collection by 50%, then your accounts receivable balance will fall to $250,000 and the result will be a

here is enormous increase in the number of combination products entering the market in the recent years. Combination products have proven advantages but fixe

extra $250,000 in your bank account. And just like that, we’re halfway to our $1,000,000 goal.

So now, let’s see how this actually works in a real-life business scenario.

Accounting Procedures Service Business Example

A service organization with $700,

d dose combinations are still in the process of convincing regulatory authority on their advantages over the single ingredient formulations.

Combination pro

000 in average A/R balances needed assistance. So we examined their A/R function to understand and quantify the workflow and workload issues. Then we designed and implemented a process to improve the A/R performance.

The metrics we developed reduced their “ove

ucts have become life saving products for the pharmaceutical companies who doesn’t have many innovative molecules in their product pipeline and have been inc

r 60” accounts receivables by 85% and their overall A/R balance by 50% within 90 days of implementing the new procedures. With these new processes and reports, the company now tracks Average Days Collection and past due rather than just Days Sales Outstanding (D

easingly used in the product life cycle management. Even the companies having product patents are trying to extend their product life cycle through the combi

O) as the measure of their collection effectiveness.

The result: an extra $350,000 in cash. And, again, we explicitly see the crucial role of time and how an increase in velocity and discipline directly yields an increase in efficiency and cash savings. So how

nation products and maximize the revenues. But the companies involved in this practice are overlooking that they are burdening the patients both economically

can you use time to your advantage?

Methods to Design the New Accounting Process

Decrease collection cycle. Examine customer accounts that go beyond your terms. Do not wait until twice the net terms to take action.

Tighten credit policy. Examine credit

and physically. They need to rightly judge the benefits of the combination products and they have to even look at the risks involved when combining the produ

process for slippage. Do you have a credit approval process? Do you perform credit checks? What standards are used to extend credit?

Reduce credit terms. Change the credit terms you offer your customers. If you offer terms of net 45, reduce it to net 30. You

ts. Some of the combination products were well accepted by physicians while others suffered. Companies involved in development of combination products are fi

might offer a discount of 1% if paid within 10 days else net due in 30 days. This is equivalent to 18 % annual interest and most businesses will take those terms.

Shorten the invoice process. Bill your customers immediately. This is a big one. Many service org

ding difficulty in defining their combination products and facing various challenges from selecting a combination to marketing it.

Following aspects would a

anizations wait until the end of the month to tally billable hours and determine customer charges. Do not wait until the end of the month. This could reduce your day’s receivable by as much as 15 days right there. Email or fax your invoices to save another day

dd to the challenges in developing combination products:

Which markets to tap where the combination products can do fairly well?
Which combination prod

or two (e.g. QuickBooks accounting software contains this feature).

Reduce billing errors. Most customers delay payments because of invoice errors. Customers won’t recognize the invoice until it is corrected and may not even notify you, the vendor, of the err

cts are meaningful and rational?
Which therapeutic categories to select?
Which Combinations can address unmet needs of the patients?
Do combin

or until you call for collection. Again, avoiding this delay in error and time will amount to cash savings.

Train Accounts Receivables personnel. Make sure that all personnel involved are training to understand the performance metrics for their jobs. For exampl

tions increase the patient compliance?
What would be the developing cost?
How to tackle the risks encountered during combination product developmen

, a company will manage $500,000 in monthly A/R balances (that’s $6 Million a year!) using an A/R clerk who makes $30,000. But then the supervisor uses nothing more than On-The-Job (OJT) training for the clerk. Then the CFO thinks that he or she (the CFO) is r

t?

As combination products don't fit into the traditional categories of drugs, medical devices, or biological products, the USFDA is in the process of devel

eally managing the money. But, in reality, that’s not the case; the clerk is managing the money day-to-day. So shouldn’t the A/R clerk receive enough training to manage such a significant amount?

After all, it only takes a 6% change in A/R in one month to equa

ping new procedures for reviewing their safety, efficacy and quality.

Professional from academic institutions, pharmaceutical industries, health care indust

l the A/R clerk’s entire annual salary. Isn’t the A/R savings worth a little extra time in training?

Maximizing the Accounting Process. With the Accounts Receivable department you should use each element of the process to gain the most benefit for your busine

y and representatives from various regulatory agencies are working out to design the regulatory requirements for manufacture and sale of combination products

s. And with time-saving procedures set in place, you will let your efficiency work for you.

Grabbing Your Policy Goal

With well-defined processes and procedures in place, you will increase efficiency by reducing your Average Days Collection. And of cour

.

As there is an increasing trend of the combination products companies manufacturing such products should be able to tackle the problems involved in the de

se a reduction in Average Days Collection means your Accounts Receivable balance will also fall, creating more cash on hand. And just like that we’re halfway to our $1,000,000 goal. All you have to do is grab it.

Next week, we will look at finding still another

elopment. They need to be wiser in analyzing the market trends and the regulatory requirements.

Companies that provide selfless information through particip

$250,000 in the Sales function – which will give us $750,000 toward our goal of $1 million in cash savings. So, again, not only do you aim to reap the rewards of extra savings to your bottom line, but also see more cash in the bank - $1,000,000 cash to be exact

tion in industry events and feedback to regulatory authorities would be able to face the challenges and will be successful in developing combination products

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