Financial policies are the guiding principles of a business’s financial practices. These policies are crucial as they reflect the values and culture of the business and provide guidelines for employees to follow.
Different business natures require different financial policies governing areas such as debt collection, fund collection, and management of petty cash.
Benefits of Financial Policies & Procedures
While it may seem like a daunting task, defining a financial policies manual offers long-term benefits for a business. This manual may include guidelines to aid managers in making consistent and reliable decisions, provide employees with an understanding of what is allowed and expected of them, and help prevent disputes. Additionally, having well-defined financial policies adds professionalism to your business.
Creating Financial Policies
The primary purpose of financial policies is to provide a comprehensive set of rules and regulations that govern business practices. A financial policy should align with business goals and reflect the culture of the business. Most importantly, these policies should be concise and easily understood by all stakeholders of the business.
Creating Financial Procedures
Sometimes, a policy would need a supporting procedure. A procedure provides a deeper explanation of the policy, outlining a sequence of activities required to complete a task. For this reason, procedures should be in the form of a flow chart or check list, a format which is clear and simple. Any related documentation falling within the policy should be referenced in the procedure list.
Types of Financial Policies & Procedures
Policies and procedures are not a one-size-fits-all. The nature of your business will determine where implementing policies and procedures can add value. For instance, having a clear hierarchical structure that specifies who is allowed to authorize certain activities, or establishing guidelines for acquiring, selecting, and managing new suppliers and customers.
Creating a comprehensive manual might be an overwhelming task, and certain policies that need addressing might be overlooked. Creating the manual incrementally, in real-time, might be a more practical approach. This approach breaks down the policy into smaller, manageable sections, capturing each step as it is carried out. It is crucial to involve various groups in the policy-writing process to ensure accuracy and ease of interpretation.
Disclaimer: This article is only a summary of the guidelines. This article is purely informational and does not replace the formal guidelines enforced by the authorities.