Why a Financial Policy And Procedures Manual is Essential for Every Business

shutterstock_204997090For any business, setting up a Policy and Procedures Manual is critical. Accounting and business record-keeping is vital, as it allows for monitoring progress through different time periods. It evaluates budget versus the actual spending, and the records will come in handy when time comes to sell the business. Legal proceedings are also well served by these records.

Aside from record-keeping, businesses are dynamic environments and there are other regular staff interactions with finances in the company.  For example, businesses regularly add new clients and suppliers, which involve authorizations on who to accept as a reliable client or supplier. Other business transactions include:

  • Procurement management – When and what equipment to buy for the inventory, and the authorisation levels for staff for these activities.
  • Bank accounts – The procedures and the authorisation levels of staff of when to open up, have access to, withdraw from, and close bank accounts.
  • Debt collection – Guidance on which customers to chase up regarding debts, which to excuse, and which to build a relationship with.
  • Insurance and risk management – Risks could originate from a number of sources including theft, property damage from accidents, serious complaints from customers and litigation with either a supplier or a customer. In each of these incidents, immediate access to funds is necessary as are dealing with authorities such as insurance companies and lawyers.

These are just a few examples, as there are constant interactions with finances for all levels of staff.

To help with all of the above, the Financial Policy and Procedures Manual is an excellent tool for any business which employs one or more staff members. There are various templates out there but, simply put, most Manuals will cover information that benefits a range of businesses.

What is a financial policy?

A financial policy statement highlights the principles and visions that are encouraged and enforced by the business to ensure that there is coherency in knowledge and method of action for all staff on various situations.

To be effective, the policy statement should:

  • Be timely and relevant to the business’ short, medium, and long-term goals and objectives.
  • Be reflective of the culture of the business, including such policies on maternity leave and working from home. If the culture of the business encourages innovation, then there should be room within the policy for staff to be innovative and treat mistakes as a learning curve. In relevant situations, the policy should also give room for staff to create their own procedure based on their expertise.
  • Be flexible in adapting to changes in business goals and objectives over time.
  • Be comprehensible by all staff so that there is no misunderstanding.

What is a financial procedure?

Once a policy is established, it needs to be supported by a procedure manual that highlights a sequence of actions to follow under various situations. A procedure manual could be a checklist, or a simple ‘how to’ guide to complete a task or resolve an issue.

While not all complex situations can be supported, the procedure manual should:

  • Be written as a step-by-step process such that the process can be followed from beginning to end.
  • Be factual and succinct. Where necessary, the document should be supported by diagrams, flowcharts, and checklists allowing staff to go through the process easily.
  • Be informative and have links to experts on this topic, or links to documents which can elaborate on the procedures.

Benefits of a financial policy and procedures manual

  • shutterstock_198977489All employees and employers are aware of and understand their responsibilities and obligations in any financial transactions that relate to the business.
  • It promotes consistency in dealing in financial matters – particularly when managers and supervisors make decisions on personalized or customised business transactions.
  • The Manual provides clarity when in doubt on which way to progress on a financial transaction.
  • It may form part of any compliance requirements for authorities such as the Australian Tax Office. In essence, the manual integrates the day-to-day financial transactions with the periodic legal requirements.

What to include in a financial policy and procedures manual

Having a well written Financial Policy and Procedures Manual will be effective in resolving a majority of common issues that develop during a business day. Internal systems and event specific procedures could dig deeper and be more elaborative.

However, too much information can be counter-productive and can clog the information channel. It can also confuse and push staff to take short-cuts in completing a process or solving an issue.

For this reason, an optimal amount of relevant information is necessary. The Manual should include:

  • Legislative updates: It is important that legislations relevant to the business are both incorporated into the Financial Policy and Procedures Manual and updated regularly. Links to Australian Tax Office (ATO) and Australian Securities and Investments Commission (ASIC) can be useful in providing regular updates.
  • Human Resources (HR): It’s important to include regulatory changes such as the Awards that staff will be paid under, and any changes to internal payroll procedures. Superannuation obligations should be included in the HR, AP and EOP Manuals.
  • Accounts receivable (AR): The AR section is critical as it ensures steady cashflow for the company. The timetables for sending out invoices and following up on unpaid invoices are essential, as they ensure that debts don’t linger and are written off. Monitoring the credit status of the clients is also important.
  • Accounts payable (AP): Equally as important as AR, the policies within AP should highlight accounting controls for cheque signatories, access to bank accounts, and documentation requirements. It should also highlight processes that ensure payment is made promptly, so that business relationships and credit ratings are maintained and improved.
  • End of Period Process (EOP): This process is a critical accounting function for any business. The procedures should be effective in reconciling funds remaining with the activities for that period. Monthly Reports cascade into Quarterly Reports (QR), Annual Reports (AR) and the Business Activity Statements (BAS).

Guidelines for introducing the manual to staff

Once complete, it is important to introduce the manual to the staff of your business, and provide them with the necessary training for them to understand and implement the policies.

  • Organise an induction meeting where the manual is initially introduced.
  • Explain the manual, and how each procedure will likely impact the staff and the various divisions.
  • Develop practical scenarios and past examples to illustrate where the manual will come into use.
  • Distribute the manual and request a time for this to be reviewed – this should be in several weeks so that the staff have enough time to give feedback.
  • Organise a second meeting to clarify any points and integrate any changes to the original document. Centralising and compiling this information will clarify the information and prevent any gaps in knowledge.

The Financial Policy and Procedures Manual is critical for every business. As such, time need to be dedicated to setting up these procedures in the initial stages of the business practice.

Jarrod Kagan
Having practised at a major law firm before moving across to Probe Group (one of Australia’s most prominent credit management organisations), Jarrod has over 8 years’ experience in credit management and debt recovery. He now holds the position of Head of Business and Compliance and as a qualified Lawyer, his skill level and experience covers the technical aspects of credit management and debt recovery, including: best practice, compliance, legislation, strategic analysis and industry specific detail.