Part 2 · Running the business · Chapter 2.1
Order to cash
Draft: the wording may change.
The idea
A sale has many steps: the order, the bill, the delivery, the collection. Most people stop counting at the bill. But a sale is finished only when the money is in hand and set against that bill. Cash is the finish line. Until then, you have given away goods on trust.
At the counter
On Monday, salesman Kumar visits Ravi Stores on his beat and takes an order. Follow it to the end.
| Step | Day | Document | Kind (chapter 1.2) | What changes in the books |
|---|---|---|---|---|
| 1. Order | Mon | Sales order | No entry | Nothing — it is a promise |
| 2. Bill | Mon evening | Sales invoice #312 | Money and stock | Debit Ravi Stores ₹4,720; credit Sales ₹4,000 and GST Output ₹720; stock goes down |
| 3. Delivery | Tue | Signed copy of #312 | Proof only | Nothing new — it proves step 2 happened |
| 4. Part payment | Tue | Receipt R-88, ₹2,000 cash | Money only | Debit Cash ₹2,000; credit Ravi Stores ₹2,000, against bill #312 |
| 5. Balance | Fri | Receipt R-97, ₹2,720 UPI | Money only | Debit Bank ₹2,720; credit Ravi Stores ₹2,720, against bill #312 |
On Monday night the sales report already shows ₹4,000 of sales. Kumar's target sheet counts it. But the business has only a promise from Ravi Stores. On Friday, when the second receipt is set against bill #312 and the bill's balance becomes zero, the sale is finished.
Where chains break
Each arrow in the table is a place where the chain can stop. Each stop has a cost.
- Ordered, not billed. The order sits in a notebook. The shop buys from someone else. Lost sale.
- Billed, not delivered. The bill is in the books, the goods are still in the godown or the van. Stock in the books is wrong, and the retailer's ledger shows a debt he does not owe.
- Delivered, not collected. The bill grows old. Every day it waits, your money is working for the retailer, not for you.
- Collected, not recorded. The salesman has the cash, or the UPI amount is in the bank, but nobody has written the receipt. The retailer is chased for money he has already paid, and he is angry with you.
- Recorded, not matched. The receipt is entered "on account" instead of against bill #312. The total is right, but the ageing report still shows #312 as unpaid.
A good office checks every evening that each chain has moved one step, and lists the ones that are stuck.
The two numbers to watch
Every day, look at two numbers side by side: sales billed and money collected. Over a month they should be close. If billing keeps rising and collections do not, the business is growing on paper and shrinking in the cash drawer. Chapter 2.5 shows how to set limits so this cannot run away.
Common mistake
Treating the bill as the end of the job. A salesman paid only on billing will push goods into shops that cannot pay. The godown empties, the outstanding grows, and the stockist ends up paying the company for goods the retailers have not paid for. Reward the finish line, not the start — at least part of the salesman's incentive should depend on collection (chapter 2.7).
Where you'll use this
In Part 3, the same chain runs at a larger scale: the company sells to you (primary), you sell to the retailer (secondary), and the retailer sells to the shopper. Each link has its own finish line, and Part 3 shows why the company watches yours.
Check yourself
- Ravi Stores has been billed and the goods delivered, but nothing is paid. Is the sale finished?
- A ₹2,000 receipt is entered "on account". What goes wrong in the reports?
- Billing rose 20% this month but collections stayed flat. What does that tell you?
Answers
- No. It is finished only when the money is received and set against the bill.
- The party total is right, but the ageing report still shows the bill as unpaid, so the wrong bill gets chased.
- Money is getting stuck with retailers. Check the outstanding and the credit limits before billing more.