Controls on income and debtors
This section explores procedures to minimise risks associated from income generation, including cash taken and cheques received.
Risks associated with services provided or sales made
- Financial loss or damage the reputation resulting from services provided failing to meet the objectives of the organisation.
- Failure to provide services by the right time and therefore failure to meet required deadlines.
- Poor quality of service provided resulting in claims against the organisation, failure to deliver objectives and damage to reputation.
- Failure to agree appropriate terms and conditions with customers or clients resulting in disputes over services and payments.
- Failure to meet regulatory requirements for services provided.
Orders and contracts
- Orders and contracts should be checked against the customer's account.
- Any new customer or client should be credit-checked before the order or contract is accepted. Agreements need to be in place before delivery of any service or processing of any sale.
- Existing clients should be allocated a credit limit. This needs to be checked whether this limit would be exceeded if the new contract is accepted. If it is, the matter should be reviewed.
- In the case of sales, all orders received should be recorded on pre-numbered sales order documents and all orders should be authorised before any goods are dispatched.
- No goods should be dispatched without a dispatch note.
- Discounts should be within procedures and clearly authorised. Management should monitor the level, type and reason for discounts.
Invoicing and credit notes
- Invoices should be authorised by a designated member of staff and reference to the original authorised order or contract.
- All invoices and credit notes should be entered in the day book record, sales ledger and sales ledger control accounts. Batch totals should be maintained for this purpose.
- Invoices and credit notes should be checked for prices, additions and calculations by a person other than the one preparing the invoice.
- All invoices and credit notes should be pre-numbered in series, and regular sequence checks should be carried out.
- Credit notes should be authorised by someone unconnected with dispatch performance or sales ledger functions.
- Copies of cancelled invoices should be retained.
- In the case of sales, any invoice cancellation should lead to a cancellation of the appropriate dispatch note.
- Cancelled and "free of charge" invoices should be signed by a designated member of staff.
- Each invoice should distinguish between different types of sales or service and the VAT.
- Any coding of invoices should be periodically checked independently
- An income or sales ledger control account should be prepared regularly.
- Sales ledger personnel should be independent of dispatch and cash receipt functions.
- Statements should be sent regularly to clients and customers.
- Formal procedures should exist for following up overdue debts, which should be highlighted either by the preparation of an aged list of balances, or in the preparation of statements to customers.
- The authority to write off the bad debt should be given in writing, and adjustments made to the sales ledger.
- The use of court action, or the writing off of the bad debt, should be authorised by an official independent of the cash receipt function.
Receipts by post
- The organisation should safeguard against possible interceptions between the receipt and opening of the post: for example, by using a locked mail box and restricting access to the keys.
- The opening of the post should be supervised and, where the volume of mail is significant, at least two persons should be present when the mail is opened.
- All cheques and postal orders should be restrictively crossed "Account payee only; not negotiable" as soon as the mail is opened.
- A record should be made the time of the opening of the post of cheques and postal orders received and cash received.
This record may be in the form of a rough cash book, machine list or copies of the remittance advices. It provides control over the eventual sums banked and entered into the cash book.
- The cashier and income ledger personnel should not have access to the receipts before this record is made.
- Post should be date stamped. It provides evidence of when remittances are received and can periodically be checked against the date of banking.
This helps to prevent cash received one day being banked as representing different receipts on a later day (called "teeming and lading").
- Receipts should be banked intact daily.
- Each day's receipts should be recorded promptly in the cash book.
- Income ledger personnel should have no access to the cash or the preparation of the paying in select.
- Periodically a comparison should be made between the split of cash and cheques
- received (as recorded in the rough cash book)
- banked (as recorded on the paying-in slip)
- The level and location of cash floats should be laid down in writing.
- Only authorised personnel should have access to the floats.
- Cash should be securely held; for example, in a locked drawer with restricted access to the keys. These should not be kept in a nearby unlocked drawer or in a stationery tray on the desk.
- All expenditure should be via a voucher signed by a responsible official, not the person in charge of the petty cash.
Read about debtor control invoicing and collecting.
Back to working capital management.
See also petty cash.
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