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4–16 Use Automated Bank Account Deductions
as being moved from one warehouse to another, or as being in transit to another
warehouse, where it will be recorded as having been received as soon as it arrives
at that location. The other possibility is to accumulate all material transfers in a
log and create a journal entry at the end of each reporting period (or sooner, such
as daily) to record inventory as having been shifted to a different company loca-
tion. This second approach requires more manual labor and is more subject to
error than the first approach, but can be used even if there is no enterprisewide
computer system for all locations. In either case, there is no need to create an
invoice, nor does the accounting staff have to worry about backing out the profit
on sales to company subsidiaries.
Cost: Installation time:

4–16 USE AUTOMATED BANK ACCOUNT DEDUCTIONS

In some industries, the invoices sent to customers are exactly the same every
month. This is common in service industries, where there are standard contracts
that provide the same services for the same price, and do so for long periods of
time. Examples of such cases are parking lots or health clubs, both of which put
their customers on long-term contracts to pay fixed monthly amounts. In these
cases, a company issues invoices for the same amount every month to all of its
customers. The customers then pay the same amount every month and the
accounts receivable staff enters the same amounts into the accounting software as
having been received.
When the same amount is due every month, a company can use automatic
deductions from the bank accounts of customers. This approach eliminates the
need to run any invoices, since the customers do not need them to make a pay-
ment. There are also no collection problems, since everything is automatic. Thus,
this approach can completely eliminate the invoicing and collection steps from
the accounting department.
Before implementing automatic deductions, one must first review the obsta-
cles that stand in the way of a successful project. One issue is that some invoices
will still be needed if a company elects to ‘‘grandfather” its existing customers,
so that they do not have to pay through bank deductions. Another problem is that
invoices are also required for the first month or two of business with a new cus-
tomer, because it usually takes some time before the automatic deduction is set
up and operating smoothly. A regular invoice may also be necessary for a new
customer because the first month of service may be for only part of the month
(e.g., if the customer starts at the middle of the month, rather than at the begin-
ning), which is easier to bill through an invoice than a deduction. Another issue is
if the customer’s bank account is canceled. Though these appear to be a signifi-
cant number of issues, they are still a small minority of the total number of trans-
actions processed. Generally speaking, if a company has a large base of cus-