3 Steps to Strengthen Accounting Procedures for SMBs

3 Steps to Strengthen Accounting Procedures for SMBs

Office billing and accounting procedures are essential to running a business no matter its size. If there are no rules in place, chances are very good that at some point you will have a big mess on your hands if you haven’t already had one. Accounting procedures give structure and organization to processes. For example, if your business’ procedure is to pay bills every Friday, then bills are paid on Friday with no exceptions. The procedure is not suggestion; it is a business rule. SMBs can strengthen their procedures, making them more effective and useful when running their organizations by following the three steps below.

Related: Accounting Solutions for Early Stage Companies

1. Identify Your Risks and Weaknesses

Figure out the areas that your business can improve. First you need to identify any problem areas. Then you will need to analyze the cause of those issues, which are often not readily apparent. Look for bottlenecks in the process. Examine if there is a chance for fraud with current procedures. Are errors happening? If so, why? For example, you may notice that your collections of receivables is too slow. This is often because bills are sent out too late, or because the bills are confusing. Would accepting credit card payments or offering online ACH options accelerate payment? Maybe the reason behind the slow payment is as simple as the mail not being opened promptly by your customers. Identifying problems and root causes behind the problem can be tricky.

2. Be Aware of Checks and Balances

Public companies are mandated by SOX Section 404 to establish internal controls and procedures for financial reporting and must document, test and maintain those controls and procedures to ensure their effectiveness. Many times the quickest way to solve a problem, may not be the best one because it may eliminate “checks and balances”. For example, a person doing the billing should never be the one receiving payments. This is a basic concept known as segregation of duties. Often smaller companies lack segregation of duties which opens them up to the potential of fraud. If the same person sends bills and receive funds, and there is an error, it can be hidden or missed altogether. Worse, if the billing person steals funds, it is hard to catch. Have at least two people involved in the main accounting processes of receiving money and bill payment.

3. Talk to Your Customers and Vendors

Welcome all feedback – good and bad. Make sure you follow up after you implement changes to make sure the issues have been corrected. Also look for patterns. For example, when multiple customers complain about a particular staff member, then he/she may need to be trained to ensure procedures are being followed to keep your customers happy.

Read More: A Solid Accounting Strategy is Key to Your Success