Trade receivables are items which can never be overlooked in the monthly MIS of the company. Further increasing amount of overdue receipts puts you in a spot of bother.
There are various concerns associated with the amount of receivables stated in the books namely:
Whether the amount of receivables stated in the books depict the actual amount of money to be received..?
Are any uninformed deductions being made by the other party..?
Are there any payments which are pending to be adjusted..?
Were there any accounting errors distorting the financials..?
Obtaining direct confirmations from the parties would be the ideal solution for all these concerns.
Ironically confirmations are not termed as a fruitful activity due to the various complications that overshadow the gains achievable in the process. Thanks to these complications that entities are either skeptical of exercising the conventional process of balance confirmations or they exercise the process only for the sake of compliance.
Now what exactly are the so called benefits of confirmations?
Increases Financial Credibility:
Credibility of the financial statement increases when its balances are confirmed directly from verified third parties.
Timely Reconciliation of Accounts
Obtaining confirmations also facilitates timely reconciliation of the books ensuring that there is minimum room for discrepancies which otherwise would have been onerous and unrewarding.
Increases Legal Validity
A contract is complete only when the receiver accepts and acknowledges the invoice raised. Confirmation of balances by authorised personnel ensures that the opposite party is legally bound to make the payment.
Improves Receivables’ Collection Cycle
Frequent follow ups for periodic confirmations straight from the accounts departments would be instrumental in placing your name at the top in the list of payments.
Fulfills Statutory Audit Requirements.
The confirmations such obtained can also be shared with the auditors in fulfilling the mandatory requirements of the Auditing Standards.
Despite the aforementioned advantages, this process is often unheeded due to the fact that financial decisions are taken on the basis of ROIs and not the benefits. And when we evaluate the other side of the coin, it is quite obvious that huge amount of resources – both financial and human are required.
And that’s where FIRMWAY plays a role by making confirmations a reality at absolutely nominal cost.
FIRMWAY is India’s premier online platform for third party confirmations. Click here to know more.