Revenue Cycle

3. The Revenue Cycle

The revenue cycle is a set of four business activities: Sales order entry, shipping, billing and cash collections. To each of these activities there are related administrative organisational activities. It is all associated with providing the goods and services of a company to their customers and collecting the payments for these sales.

Information about the revenue cycle activities also flows to the other accounting cycles which are: the expenditure cycle, the production cycle, the human resources and payroll cycle and the financing cycle.

An example is that the expenditure and production cycle actually both use information about the sales transactions of the company to see if additional inventory must be produced or purchased to meet the demand.

Another example is that the human resource and payroll cycle will use information about the sales, of in this case Rotary, to calculate the amount of commissions and bonuses which each employee, if any, will receive.

The main objective is described above, to accomplish this objective the management of Rotary has to make certain primary decisions. These decisions will be described in the next chapter. Another task of the management is to monitor and evaluate the efficiency and the effectiveness of all the revenue cycle processes. Therefore they need to have easy access to all the resources employed in this cycle, the events which actually affect these resources and the agents which take place in executing these events.

We will also see in this case the importance of accurate, reliable and timely data.

The AIS had three basic functions in this cycle:

1. Capturing and processing data about business activities

2. Storing and organizing data to support decision making

3. Providing controls to ensure the reliability of data and the safeguarding of organizational resources

All these aspects mentioned above will be examined within this paper.

4. Primary Decisions

As stated before, the primary objective of the Revenue Cycle is:” To provide the right product in the right place in the right time at the right price.” (Straetmans&Stassen, 2008)

To accomplish this objective certain primary decisions have to made by the management. These will be described within this chapter.

4.1 To what extent can and should products be customized to individual customers’ needs and desires?

At the beginning of the 20th century, industrialized economies were on mass production, mass distribution, mass marketing and mass media. However, a combination of advances in information and technology was, and still is, making it increasingly possible to rapidly respond to specific consumer needs and desires by producing customized products.

Through this, customer-focused strategies and customised products have become increasingly popular from the 1990’s.

Customized products can be defined as: ”slight variations of standard configurations and are typically developed in response to a specific order by a customer.” (Wikipedia, 2008).

A customised product can be seen as a generic product which is modified by customer needs, like for example a motor with specific technical aspects required by the client.

It also can be seen as a special product which is made of standard modules combined in the way the customer wants, like a prefabricated house.

There are different motivations for customization. Usually a product is customized to fulfil customers’ needs. A certain customer might need features which are actually considered as being useless or even unattractive by other customers, or features which are simply not common standard features. There are for example customers of Rotary who need electric motors which are provided with a built-on seawater-proof brake. For other customers this might be useless and therefore they would pay for something which they do not need. Obviously this is not a desired situation.

Similarly, some customers require higher or lower performance, or the product is to be included as a certain part of the customers manufacturing process. Customization can also be a choice for its own sake.

Customization