Policy and Procedures Manual for Accounts Receivable

Undertake all work in accordance with organisational procedures, legislation and regulations

Contents

Introduction

Policy and procedures manual for accounts receivable

Managing accounts receivable

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Introduction

We now look at what the organisation states are the responsibilities of staff carrying out duties in the area of accounts receivable. We will also look at strategies that can be employed in the management of accounts receivable.

Policy and procedures manual for accounts receivable

Let’s look at the policy and procedures statement for accounts receivable. You will probably know that each organisation has its own policy and procedures manual. The purpose of this manual is to instruct all staff on how certain functions in a business must be completed. For example, you will notice in theexcerpt below that the accounts receivable clerk must update the debtors ledger the same day as cash is received. Such instructions are provided so that staff members are clear about whatis expected of them.

Most policy and procedures manuals are slightly difficult to read. It is helpful to remember that the purpose of the manual is simply to instruct all staff on how functions should be carried out. The manual will tell you what staff can approve certain activities, and who has responsibility for various functions.

We will look at the manual for Wesellit Department Store. Thefollowing excerpt from the manual gives instructions for completing all accounts receivable activities.

Below is an excerpt from the Wesellit’s policy and procedures manual.

Accounts receivable—credit control

Policy: / It is important to control all monies due to the company from sales on a credit basis.
Wesellit Department Store operates in accordance with the accepted business practice of allowing credit to customers. Atthe same time, the need for prompt receipt of monies due isvital.

Responsibilities of accounts receivable clerk

1Bank all cash receipts daily, and supply all debtors with a company receipt.

2Update debtors ledger the same day as cash is received.

3Obtain credit checks for applications for credit.

4Generate tax invoices on advice from the sales coordinator.

5Print and dispatch monthly statements to customers with outstanding balances on the debtors ledger.

6Verbally follow up all outstanding amounts with debtors and investigate claims for tax adjustment notes as required.

7Process tax adjustment notes as recommended by the sales manager and approved by the financial controller.

Let’s look at each point above to find out why it is included in the manual. Firstly, the policy is simply a philosophical statement of how the business views the role of accounts receivable. It simply says that staff need to control all monies owing to Wesellit Department Store. It also says that Wesellit Department Store allows customers to buy on credit. It further reminds staff of the need to get debtors to pay their accounts quickly.

Assuming you are the accounts receivable clerk for Wesellit Department Store could you carry out all the duties (responsibilities) listed above?

By now you should have a good idea of what is required to fulfil responsibilities numbers 1, 4 and 7. Do these three responsibilities make sense to you? Could you tell a prospective employer how you would go about carrying out these responsibilities? It’s important to know the policies and procedures of any organisation you work for. Some of the important information these manuals give you are the other staff members you should talk with to get the job done, who you are responsible to, and the deadlines which the organisation puts on various tasks.

/ Activity

Explain the responsibility numbers 1, 4 and 7 in the excerpt above in your own words.

Responsibility No 1 means:

______

Responsibility No 4 means:

______

Responsibility No 7 means:

______

Check your answers with those given at the end of the document.

Managing accounts receivable

Strategies

Payment by accounts receivable

monitor all payments
act swiftly if customers are not paying on time
spend time on profitable customers
maintain confidence and goodwill with good customers
increase the number of times that you deal with good customers with aview to higher sales values
watch that there are not too many people owing you money instead of paying it—your overdraft is expensive.

Debtor control (accounts receivable)

Review situations where the following occur:

longer than usual delays in making payments
cheques are post-dated
excessive returns of products are purchased
promises to make payments are not kept
a decrease in new orders from customers
cheques are dishonoured from the bank
contact with management cannot be made.

Also:

update accounts receivable records regularly—ie terms of credit, contact details
use the age debtors report to quickly detect slow payers.

Minimising slow or non-paying debtors (accounts receivable)

perform a complete credit check
contact customer for explanation of late payment
send demand letters
use debt collection agencies
stop further credit
negotiate payment plans
negotiate discounts for shorter payment times
follow upwith overdue debt as soon as possible—ie be serious about debt collection.

Feedback to activity

Responsibility number 1 means that I must deposit all the money received in Wesellit Department Store’s bank account on the day it is received. I must write out and send a receipt for all the money received.

Responsibility number 4 means that I must only complete an invoice when I am advised to do so by the sales coordinator.

Responsibility number 7 means that I must only complete a tax adjustment note when I am advised to do so by the sales coordinator and when I have the approval of the financial controller.

Undertake all work in accordance with organisational procedures, legislation and regulations1