RED Flags

🛠️ Solution: Ensure that:

• Introduce clear payment terms and communicate them upfront

• Strengthen credit checks before extending terms

• Resolve customer disputes quickly to avoid delays

• Automate invoicing and reminders with software to ensure timely follow-ups

• Follow up with a phone call

• Involve sales people for disputable accounts

• Offering early payment discounts or introducing penalties for late payments can also help

❓ Questions to Ask:

In the growing stage of the business:

• How often does company review payment terms and working capital processes?

• Has company automated invoicing issuance and follow-up procedures?

• Are staff trained in proactive cash collection techniques?

• Does staff regularly reconcile balances with customers?

• Are salespeople involved early enough to help resolve disputable balances?

• Is a robust KYC process in place to ensure effective credit-checking for new customers and review of the credit score for existing customers?

• Are payment terms clearly outlined and understood by customers?

• Is the finance team following up on overdue invoices in a timely manner?

• Are disputes or queries from customers causing delays, and how are they being addressed?

📌 Example:

A mid-sized B2B company faced persistent overdue receivables, causing cash flow shortages. After implementing automated invoicing and reminders, establishing stricter credit policies, and training their finance team to handle disputes effectively, they reduced overdue receivables by 40% in six months.

💡Solution: Investigate discrepancies, resolve them and introduce processes and controls to prevent future occurrences.

🤷‍♂️Questions to ask:

• What is the cause of the difference?

• Why haven’t the differences been resolved?

• How can materiality be assessed without investigating the difference?

💼 Example: Sales volumes from the website don’t match those recorded in the accounting system. This might be due to:

• Inaccurate input reports used for uploading to the accounting system

• IT bugs causing data synchronisation failures

• Incorrect data filters used by the finance team when extracting reports from the website

• Duplicated sales entries from either website synchronisation or report downloads

• Fraud: Sales can redirected and partly be collected outside of the reporting system.