There are three main risk areas with creditor balances.
It's important that you're ware of them as errors in creditor balances can cripple your business.
Revealed: Three risk areas within your company's creditor balances
#1: Unauthorised suppliers and inaccuracy of recording
Unauthorised suppliers are creditors that haven't been approved by management to supply goods or services to the business, for example, because of high sales prices, poor products or due to unfavourable payment terms.
Inaccurate recordings are errors that occur when you process goods bought into your company's accounting system.
#2: Creditor payments (fraud and misappropriation)
The payment of creditors can have many risks if you don't have sufficient controls in place, for instance, banking details may be incorrect or the creditors you're paying may not even exist, warns the Practical Accountancy Loose Leaf.
#3: Settling balances
You need sufficient cash available to pay creditors when the balances are due. You could be charged penalties and interest on late payments.
An even bigger problem is over spending. This is when you buy more on credit than you're able to repay in the future. This results in excessive debt.
Are there any controls you can implement to reduce risks in creditor balances?
Yes, there are.
Make sure you implement these three levels of controls to reduce errors in your company's creditor balances and save your businesses' cash flows.