Example Financial Procedures - Sales and Accounts Receivable Procedures

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1 E2 Example Financial Procedures - Sales and Accounts Receivable Procedures How to use this template This document is an example of the procedures that an Indigenous business could introduce to assist in the managing sales. It is important to note that the nature and complexity of such financial procedures may vary depending on the specific financial risks in the business and the size of the company concerned. However, this template procedure provides an example that a company can then tailor to their own needs. Note - This document is an example and may not be appropriate for all businesses. Example Financial Procedures Sales 1) Basic financial procedures (depending on the nature of the goods/services provided by the business some of these procedures may not be relevant). 1.1) Sales staff should ensure that all sales orders are recorded on pre-numbered forms and that all numbers are accounted for. The relevant Manager should review the order forms on a routine basis to confirm that all numbers have been accounted for (i.e. to make sure that sales order forms have not been taken out of the book and are unaccounted for). 1.2) Sales staff should use numbers for each bill issued to customers (e.g. invoice numbers). Managers should review a listing of the invoices raised on a routine basis to ensure that all numbers are accounted for and that no duplicate or fraudulent invoices have been issued. 1.3) The goods despatch staff or service delivery staff should ensure that any goods / service despatch notes are matched to a copy of the customer invoice, require evidence of delivery and record orders on pre-numbered forms. 1.4) Finance staff should enter all sales invoices in the financial ledger and accounts receivable ledger (if not part of same system) on a timely basis. 1.5) Separate the accounts receivable function and cash receipting so that the same person is not raising invoices and receiving cash.

2 2) Reconciliation controls 2.1) Check sales figures from their individual source, such as invoices. 2.2) Reconcile sales register with cash takings and credit card receipts. 2.3) If sales staff work on commission then finance staff should check any reported sales to invoices and other source material to confirm that the reported sales figures are valid and that commissions are not paid until sales funds are received. 2.4) Finance staff should conduct stock-takes regularly and reconcile the results to accounting information (i.e. if the financial system states that $100,000 worth of goods are held in stock, does a physical check of the stock room confirm that these goods actually exist?) 3) Procedures for provision of credit to customers (if applicable) 3.1) The company should develop and document a credit approval/balance limit policy, including information on who must authorise new applications. For example: New customers should not be provided with credit except where authorised by the CEO (or delegate). Detailed credit checks should be undertaken on all new companies requesting some form of credit. Customers are able to apply for credit once they have been on the approved vendor list for a period of xx months. Initial credit limits will be capped at $xxxx and all new credit applications must be approved by the [INSERT DELEGATE] Manager. Monthly reports should be provided to the Sales Manager and Finance Manager on a monthly basis that track the levels of credit provided to customers and any deviation from agreed repayment terms. 3.2) Credit files for all customers should be maintained and kept up-to-date. 3.3) All credit purchases by customers should be recorded as soon as the transaction occurs. 3.4) Ensure that credit notes are pre-numbered, accounted for and approved. 3.5) Review credit balances on a regular basis.

3 4) Pricing and discounts 4.1) Management should develop and document a pricing and discounting policy including authorisation to vary rules. 4.2) Management should ensure that sales orders are approved in terms of price, terms and conditions, credit and account balance limits before the sale is agreed and the invoice is issued to the customer. 5) Returns and Complaints 5.1) Make sure your staff know how to handle returns and deal with customer complaints. 5.2) Have customer complaints handled independently of the sales department. 6) Aged debtors and bad debts 6.1) A list of outstanding invoices should be prepared monthly which shows the customer name, the amount of the invoice and how many days the invoice have been outstanding for. This list should be reviewed by senior management to identify any potential bad debts and any apparent anomalies. 6.2) Finance staff should chase up overdue accounts in lines with the credit policies. 6.3) Finance staff should be aware of and (where appropriate) implement any conditions associated with early payment discounts and penalties on overdue accounts. 6.4) Ensure that write-offs and other adjustments (including cash back) to customer accounts are authorised and reported on and reviewed.

4 Financial Statements and Reporting Procedures Accuracy of financial information 1) Basic financial checks and controls 1.1) Finance staff should use sequentially numbered business forms (such as on cheques, sales orders, invoices etc.) to ensure that Management can keep track of any payments or receipts and can check the amount banked to the relevant documentation if required. 1.2) The company should establish automated controls such as valid date ranges (e.g. cheque payments must be less than 6 months old) or dollar value limits (e.g. payments over $5,000 require approval by a board member) to control high risk financial transactions such as payments or payroll. 1.3) Management should produce detailed management accounts that track progress against the annual financial budget at cost centre level as well as cash flow projections for the company as a whole. 2) Reconciliation controls 2.1) Management should establish regular reconciliation controls for key financial systems such as: Between bank account and financial ledger; Between financial ledger and payroll system; Between financial ledger and purchase ledger; and Between financial ledger and sales ledger. 3) Separation of duties 3.1) Management should take great care in allocating the duties associated with high risk activities such as ordering, recording and paying for purchases. Where possible key activities should be undertaken by different people: For example: an employee who receives goods does not also order goods, the person who receives cash income does not also bank the income or reconcile the banking to the cash book; the person who manages the payroll does not approve the payments to staff; or the employee who manages account payables does not also issue payments. 3.2) Where the small size of a business means that it is not possible to achieve this separation of key duties, then management will need to introduce a range of authorisation controls to ensure that fraud and error risks are minimised. 3.3) Another way of reducing risks of fraud and error risks in smaller organisations is to rotate the responsibilities for key

5 financial activities e.g. payroll, petty cash and receipting. This means that any fraud or error on the part of the incumbent will be likely to be uncovered by the next person to undertake the role. 3.4) Management should ensure that finance staff take their allocated annual leave. This means that another employee will be undertaking those tasks during the period of leave and any systemic fraud or error would be uncovered by the person deputising in that role. 4) Authorisation controls 4.1) Managers and supervisors should be required to authorise and approve key financial controls such as bank reconciliations, large cash receipts, large payments, weekly payroll, addition of new employees to payroll, addition of new vendors to accounts payable system. 4.2) Management and supervisors should also undertake spot checks of financial records at certain times during the year to gain assurance over the accuracy of transactions but also to make staff aware that their work will be checked. 4.3) Staff should be given clear delegations on exactly what level of transactions they are authorised to make (e.g. junior staff may have no delegation, supervisors may have a $2,000 delegation and managers may have a $5,000 delegation). 5) Exception reporting 5.1) Management should establish exception reports from their financial system that flag unusual transactions such as large payments to employees, large payments to vendors, payments to new vendors and payments to new employees. 6) Adequacy of financial records 6.1) The company should maintain financial records that are up-to-date and balanced. 6.2) Management should ensure that there is a records retention system in place so that financial records are filed securely for the appropriate length of time (in accordance with relevant regulations and legislation).