This cycle is known internationally as order to cash. It is not an accounting procedure but an operational chain shared by the salesperson, the storekeeper and the accountant, each signing a document that prevents the others’ mistakes.
1 The links and their documents
| # | Step | Document | Owner |
|---|---|---|---|
| 1 | Customer order | Sales order | Sales |
| 2 | Credit check | Credit approval | Finance |
| 3 | Picking the goods | Warehouse issue note | Warehouse |
| 4 | Delivery | Delivery note signed by the customer | Transport / warehouse |
| 5 | Invoicing | Tax invoice | Accounting |
| 6 | Follow-up | Statement and ageing report | Credit and collection |
| 7 | Receipt | Receipt voucher | Treasury |
Step two is the first one dropped
When time is short, the credit check is the first thing skipped: “send it now and we will sort the paperwork later.” Six months on, a customer has exceeded their limit threefold and is not paying. A control that is bypassed under pressure is not a control.
2 When is a sale recognised?
Revenue is recognised neither on signing the quotation nor on receiving the cash, but when control of the goods passes to the customer — usually the delivery date evidenced by the signed note.
Sales order
A commitment only — no accounting entry
Delivery
Control passes — revenue begins here
Invoice
Debit receivables · credit sales and tax
Receipt
Debit bank · credit receivables
Two entries, not one: the invoice creates the debt and the receipt settles it
Every sale takes stock out
The invoice records the revenue, and a second entry always accompanies it: cost of goods sold debit, inventory credit. Record the revenue and forget the cost, and you show a phantom profit for the month — then discover the difference at the count.
3 Returns and credit notes
- Goods returned: the stock comes back with a note, and both revenue and cost are reduced.
- A discount after invoicing: a reduction in value with no goods coming back.
- An error on the invoice: price, quantity or customer details.
- The credit note is the formal document for all of the above, and it adjusts the tax as well.
- The return rate is a quality indicator: a rising one reveals a fault in the product or in the selling itself.
| Bucket | Amount | Share |
|---|---|---|
| Not yet due | 1,200,000 | 48% |
| Overdue 1 – 30 days | 600,000 | 24% |
| Overdue 31 – 90 days | 450,000 | 18% |
| Overdue more than 90 days | 250,000 | 10% |
| Total | 2,500,000 | 100% |
The reading: more than half the balance is due and overdue, and 10% has passed 90 days — and it is that bucket in particular that usually turns into a provision and then a write-off.
The action: stop credit supply to anyone past 90 days, schedule a call before the due date rather than after it, and tie the rep’s commission to collection rather than to invoicing.
4 Segregation of duties
| Duty | Must not be combined with | Risk if combined |
|---|---|---|
| Issuing the invoice | Receiving the cash | Collections that are never banked |
| Granting a discount | Approving it | Discounts beyond authority |
| Approving a credit note | Issuing the invoice | Fictitious sales cancelled to hide a gap |
| Issuing goods | Counting the stock | Concealing a shortage |
| Opening a customer record | Setting their credit limit | Selling to a fabricated customer |
Lesson summary
- The cycle has seven steps, each with its own document and a different owner.
- The credit check is the first control to be bypassed and the most dangerous to neglect.
- Revenue is recognised when control passes, usually on the signed delivery note.
- Every sale carries a second entry: cost of goods sold against inventory.
- The credit note is the document for returns and discounts, and it adjusts the tax too.
- The ageing report turns collection from a courtesy into a procedure.
5 Test your understanding
Three quick questions
Pick the answer you believe is correct and you will see the result immediately.
1. A customer signed a sales order for one million and the goods have not been delivered. The correct treatment:
A sales order is a promise to perform; revenue arises on delivery, which transfers control to the customer.
2. A company records the invoice and forgets the cost of goods sold entry. The result:
Booking revenue without its cost inflates profit, and the stock stays on the books after it physically left.
3. The same salesperson issues the invoice and approves the credit note. The main risk:
Combining creation and cancellation removes the document’s control value entirely.