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Warning: Use these three financial controls to ensure your business doesn't go under because of badly managed creditors

by , 22 April 2014
Creditors are a short term liability, but if you don't manage them properly they can become a massive problem. To stop this from happening, you need to implement better controls. Otherwise you could be looking at a big debt crisis in your business. Here are the controls you should be using in your business to manage your creditors...

Three accounting record risk areas to watch out for
Three internal controls you have to use to manage your creditors better
There are lots of controls you can use to get better management of your creditors. But according to the Practical Accounting Loose Leaf these three controls are ones you have to use:
1. Management level controls
This means that the accounts department can't make a transaction to pay any creditor unless you approve it. You must also make sure that you've recorded all of the information and know that it's right first. 
2. Staff level controls
This means that your employees can't approve any transactions. If they do, they have to sign to say they're taking responsibility for the information. This way if it's wrong, you know who's responsible. 
3. Systems level controls
Your accounting system must have controls built in to stop unauthorised people messing with the records. This can something as simple as using a password to keep unauthorised people out. 
These three controls will help you to make sure you don't over- or underpay your creditors. The more you streamline and simplify the payment process, the fewer mistakes will happen. 
But what else can you do?
How to save on auditors' fees and:
  •  Ensure your fixed asset register is prepared by the time your auditor arrives;
  •  Maintain your cash flow;
  •  Identify problem areas in your business; and
  • Cost less than what an accountant charges for two hours of his work.
Use these four extra tips to make sure money goes to debt collectors and not into employees back pockets
As we explain here, the following four things can also help you make sure no one can change your accounting records:
1. Lock your accounting records and supporting documents in a secure room. Make sure that only management and accounting personnel can physically access this room.
2. Encrypt all the electronic files and save on a secure local server.
3. Follow internal audit procedure to make sure your accountant or bookkeeper isn't using her power to embezzle funds. 
4. Communicate and enforce ethical values in your company
There you have it. Using these tips and financial controls will help you to manage your payment of creditors and movement of money.

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