Following is the list of ten internal controls that the organization should have over the collection of the accounts receivables.
- Accounts receivable collections should be processed on a daily basis
- Establishment of the proper information system by the organization
- Proper segregation of the duties
- Establishment of proper authority level
- Constant review of the balances due from the customers so that proper check and balances is to be maintained by the organization
- Reminder letters should be mailed to the customers after a reasonable interval of time
- Money received in cash form from the clients should be deposited in banks on time
- Proper recording of the transactions by the trained employee
- General ledgers and subsidiary ledgers should be reconciled on a timely basis
- Proper maintenance of the documents for legal compliance and as a proof purpose in case of need
Importance of liquidity ratios in short-term financial decision making
Liquidity ratios are considered to be very useful tools for the management to take short term financial decisions.
Following are the some of the most important liquidity ratios.
- Current Ratio
- Acid Test Ratio
- Receivable Turnover Ratio
- Inventory Turnover Ratio
All these ratios are used to measure the liquidity conditions of the company.
Current ratio and acid test ratio shows that how much current resources a company has to meet its current liabilities. So these ratios help managers to decide that whether there is a need for the current resources in order to run the operations of the business smoothly.
Receivable turnover ratio used to calculate that how many times accounts receivables turnover. Higher ratio shows that the company is taking longer time to collect the amount from the clients. So this ratio also helps manager to take any decision regarding how to collect cash in a shorter period of time.
Inventory turnover ratio also used to measure that how many times per year, inventory is turned over. Higher ratio shows that the company is taking long time to sell its goods. So this ratio also helps managers to make decisions by which a company’s inventory can be sold out by utilizing minimum days.
At the end, all above discussions clearly showed that liquidity ratios provides a very important information regarding the company’s liquidity and ultimately these ratios play a significant role in the short term financial decision making process.
Bibliography
gfoa. (2013, 02). Sample Revenue Control and Management Policy. Retrieved 11 09, 2013, from gfoa.org/downloads/SampleRevenuePolicy.pdf: http://www.gfoa.org/downloads/SampleRevenuePolicy.pdf
Wright, T. C. (2013, 03). How Could Liquidity Ratios Help a Manager? Retrieved 11 09, 2013, from smallbusiness.chron.com/could-liquidity-ratios-manager-69899.html: http://smallbusiness.chron.com/could-liquidity-ratios-manager-69899.html
