Controls Over Accounts Receivable

The accounts receivable controls start off from the creation of customer invoices. This means that if the business owners wish that they can keep good control of the company’s accounts receivable, they need to start from generating customer invoices properly and keep a good record of them. If you are running a small business and you find it challenging to put in time and effort to take good care of your books of accounts, you should consider hiring a bookkeeping firm in Singapore to help you out.

By creating customer invoices properly, you can reduce the issues that you need to deal with when you are creating accounts receivable. You can only have a complete set of controls over your accounts receivables after achieving this. The controls over accounts receivable cover the proper maintenance of them as well as their elimination when the company receives the payment from clients or generates credit memos.

Listed below are the controls that your company should have if you wish to take good care of its accounts receivable:

–       Get credit approval before shipment

If your staff have sent the goods (Also see Journal Entries for Cost of Goods Sold) to a client who has a bad credit rating, you may meet some problems when you want to collect the accounts receivable. Thus, the staff should get signed approval from the credit department for all the orders that exceed a certain amount.

–       Confirm the contract terms

You should ask your staff to verify any unusual payment terms before they create an invoice. If not, you may have some invoices that your clients refuse to pay in your accounts receivable (Also see An Overview of Receivable Turnover).

–       Proofread the invoices

If there is a mistake in an invoice that involves a substantial amount of money, your client may not pay you until you send him a revised invoice. To reduce the chance of such a problem happening, you should proofread the invoices with larger amounts.

–       Segregation of duties

You should not allow any staff to manage the payments that the clients have made and create credit memos. If you did not segregate the duties, they would have the chance to take the money and use credit memos to cover their tracks. Thus, you should let different staff complete the tasks.

–       Review the journal entries for accounts receivable

Almost all the transactions for accounts receivable (Also see Does Your Company Prepare Accounts Receivable Aging Report?) will go through a sales journal in accounting software. The accounting software will create accounting entries on its own. Thus, you most probably would not see manual journal entries in your accounts receivable account. If you see any, you should look into them carefully.

–       Audit invoice packets

After completing the invoices, the billing clerks should put a packet on file which includes the bill of lading (B/L or BOL), sales order, invoice copy, as well as a credit authorisation. Then, the internal auditors should review some of these packets that they have selected to confirm that the clerk has reviewed the supporting documents properly and has created the invoices correctly.

–       Match the billings with your shipping logs

Sometimes, your employees may deliver the items without the corresponding invoice, or they may not deliver the items for which the company has issued the invoice. If you want to detect such issues, you should assign internal auditors to compare between the billings as well as your shipping logs. If there are any differences between the two documents, ask the internal auditors to look into them.