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Effective Accounting and Finance Policies for Best Practices



Effective accounting and finance best practices are most likely to succeed if the entire organization is fine-tuned to accept and support them. This calls for sufficient budgeted funds for each best practice, a supportive management team, and an employee reward system specifically constructed to focus attention on best practices success. In addition, a more subtle approach is to adopt a set of policies that assist in best practice implementations, either through specific policy wording or indirectly as the result of a general guiding principle. Only a subset of accounting and finance best practices can be supported in this manner, since many occupy such specialized niches at a detailed procedural level that there is no way to create a supporting policy. Nonetheless, it is worthwhile to obtain management or even board-level support for a set of policies in for best practices.

This post contains a set of most effective policies [as far as I know] that you may want to adapt and implement on your own way.  It itemizes each policy, a brief discussion, and the titles of Best practice to be implemented. The classical definitions of a policy are that it is a course of action or guiding principle.


A number of policy statements in this post are rather more specific, and can be construed instead as goals, since they itemize specific numeric targets to be achieved. If so, fine—an excessively detailed “policy” will still have a greater impact on the successful implementation of a best practice than no policy at all.

Accounts Payable Policies for Best Practices

[1]. “Procurement cards shall be the preferred payment tool for purchases under $_____”.

This policy reduces the volume of transactions moving through the purchasing department, as well as the number of manager approvals and check signatures needed for payments.

Best practice to be implemented:

  • Reduce required approvals
  • Use procurement cards

[2]. “Purchase orders must be used to authorize all purchases exceeding $_____”.

This policy makes the purchasing department the primary control point over incurred expenses. Once a purchase order number is assigned, there is no longer a need for any additional downstream approvals over the payment process.

Best practice to be implemented:

  • Pay based on receiving approval only
  • Reduce required approvals
  • Automate three-way matching
  • Substitute wire transfers for checks
  • Use signature stamp
  • Use blanket purchase orders

[3]. “Supplier invoices received by electronic transmission shall be paid ___ days earlier than standard terms”.

Alternatively, Supplier invoices received by electronic transmission shall receive top processing priority. Either variation on this policy creates an incentive for suppliers to avoid remitting paper-based invoices, thereby allowing the payables staff to achieve a higher degree of automated payment processing. This policy can also apply to employee expense reports.

Best practice to be implemented:

  • Receive billings through electronic data interchange
  • Request that suppliers enter invoices through a Web site
  • Automate expense reporting

[4]. “All supplier invoices shall be recorded in the accounts payable system within ___ days of receipt”.

This policy forces the accounting staff to record supplier invoices in the accounting database as soon as possible, so the related expenditure is immediately visible to the corporate cash planner, while also reducing the chance that invoices will be lost prior to being recorded.

Best practice to be implemented:

  • Receive billings through electronic data interchange
  • Request that suppliers enter invoices through a Web site
  • Shift incoming billings to an EDI data-entry supplier
  • Automate expense reporting

[5]. “All travel advances and manual check requests require prior approval by a ____-level manager”.

This policy makes it as difficult as possible for an employee to be granted a cash advance for prospective travel expenses or a manual check outside of the normal batched check run, thereby reducing the need for a manual check or cash payment. Also, in the case of travel advances, it avoids the recording of this payment as a prepaid expense until such time as an expense report is received and reconciled.

Best practice to be implemented:

  • Eliminate cash advances for employee travel
  • Eliminate manual checks

[6]. “There shall be one designated supplier for each stock keeping unit (SKU), with a second supplier allowed only for designated critical materials”.

This policy assists in shrinking the total number of suppliers, which correspondingly reduces the number of supplier invoices to process.

Best practice to be implemented:

  • Shrink the supplier base


Billing Policies for Best Practices

[1]. “All customer invoices must be issued no later than ___ days subsequent to product shipment or service completion”.

This policy presents the billings staff with the overriding goal of issuing invoices in a timely manner.

Best practice to be implemented:

  • Have delivery person deliver the invoice
  • Do early billing of recurring invoices
  • Issue electronic invoices through the Internet
  • Transmit transaction via electronic data interchange
  • Have delivery person create the invoice


Cash Management Policies for Best Practices

[1]. “___% of all invested funds shall be capable of liquidation within ___ days of notification. All investments falling below the [investment grade] or requiring more than ___ days to liquidate must be approved in advance by the [officer position]. The following specific investment types can be used without further approval: ________”.

This policy gives structure to a company’s risk and liquidity requirements, thereby allowing the treasury staff to build an appropriate cash management and investment strategy requiring minimal additional approval for ongoing investment transactions.

Best practice to be implemented:

  • Utilize an investment policy


Collection Policies for Best Practices

[1]. “The collections staff has primary responsibility for receivable collection, but may call on the assistance of the originating salesperson if normal collection techniques prove ineffective”.

This policy clearly states who has primary and secondary responsibility for collections.

Best practice to be implemented:

  • Clearly define account ownership


[2]. “Senior management shall collectively review and adjust the corporation’s product and services pricing policy at least annually”.

This policy gives the collections manager periodic input into price formulation by informing senior management of the impact of the existing pricing structure on billing and collection problems.

Best practice to be implemented:

  • Simplify pricing structure

[3]. “The collections staff can write off individual invoice balances of up to $___, not to exceed $___ in total per customer during a ___ month period, with no additional approval”.

This policy avoids an excessive degree of management approval for small-balance write-offs, while still providing control over multiple write-offs involving the same customer.

Best practice to be implemented:

  • Write off small balances with no approval

[4]. “The credit manager must approve all credit requests exceeding $____ prior to issuance of a final, firm sales quote”.

This policy forces the sales staff to first collect credit information from prospective customers before presenting a final quote. The dollar floor included in the policy allows management to restrict this policy to only the larger quotes whose dollar volume warrants the investigative effort of the credit staff.

Best practice to be implemented:

  • Pre-approve customer credit


Commission Policies for Best Practices

[1]. “The commission calculation system shall not be altered without approval by the chief executive officer”.

This policy requires high-level approval to make plan alterations, so there is less chance that the sales manager will gradually increase the commission plan’s complexity over time.

Best practice to be implemented:

  • Simplify the commission structure


[2]. “Commissions shall be paid based only on cash received. This policy supports collection efforts by giving the sales staff a considerable interest in receiving payment for invoices”.

This approach avoids the use of commission payments based solely on invoiced amounts.

Best practice to be implemented:

  • Only pay commissions from cash received


Costing Policies for Best Practices

[1]. “The company shall maintain material and labor record accuracy of at least ___%, which shall be verified on a regular basis by the internal audit staff”.

This policy supports the operation of a materials planning system, which requires high levels of record accuracy. However, it is also of considerable use to the cost accountant, who needs the same level of record accuracy to conduct various types of cost analyses.

Best practice to be implemented:

  • Audit bills of material
  • Audit labor routings

[2]. “A materials review board shall conduct an ongoing review of the inventory to ascertain which items should be disposed of, and to direct this disposition in the most profitable manner”.

This policy is intended to keep a company from accumulating an excessive amount of inventory, and also helps the controller by ensuring that obsolete inventory is located and valued on a regular basis.

Best practice to be implemented:

  • Follow a schedule of inventory obsolescence reviews


Finance Policies for Best Practices

[1]. “The company shall periodically conduct an odd-lot purchase program at a premium of no more than ___% to buy out small investment holdings”.

This policy minimizes the number of small investors, who require an excessive cost to maintain in proportion to their stockholdings. The stated maximum amount of the premium offered to buy back these shares sets a cap on the price offered by the treasurer, with no further intervention required by the Board of Directors.

Best practice to be implemented:

  • Eliminate small investors

[2]. “Employees are eligible to participate in the corporate 401(k) plan as of their hiring date as full-time employees or on their return from a leave of absence”.

This policy helps to retain employees, while also reducing employee-related paperwork subsequent to the initial hiring process.

Best practice to be implemented:

  • Grant employees immediate 401(k) eligibility


General Policies for Best Practices

[1]. “The company supports a formal training program for all employees, and requires the consideration of such training during the employee review process”.

This policy is certainly a useful tool for attracting new employees, but also supports the creation of a number of training programs within the accounting department.

Best practice to be implemented:

  • Create accounting training teams
  • Create an ongoing training program for all accounting personnel
  • Create computer-based training movies
  • Implement cross-training for mission-critical activities



Internal Auditing Policies for Best Practices

[1]. “The company shall comply with all internal control provisions of the Sarbanes- Oxley Act”.

This policy seems redundant—why state that you agree to follow the law? However, most Sarbanes provisions apply only to publicly held companies, so this policy is a useful one for privately held companies who wish to upgrade their control standards to those of public firms. Also, complying with the policy likely requires extensive funding of the internal audit department.

Best practice to be implemented:

  • Annually update an internal control assessment of each business unit
  • Create a control standards manual
  • Schedule internal audits based on risk
  • Assign internal auditors to system development teams

[2]. “All company managers are responsible for meeting the control provisions of the Sarbanes-Oxley Act”.

This policy is especially useful in forcing managers throughout a company to consider control issues as part of their ongoing activities.

Best practice to be implemented:

  • Issue self-audit guides to business units
  • Train business unit staff on control issues
  • Train new business unit managers on control issues


Inventory Policies for Best Practices

[1]. “A materials review board shall conduct an ongoing review of the inventory to ascertain which items should be disposed of, and to direct this disposition in the most profitable manner”.

This policy keeps a company from accumulating an excessive amount of inventory, and also helps the controller by ensuring that obsolete inventory is located and valued on a regular basis.

Best practice to be implemented:

  • Use bills of material to find inventory made obsolete by product withdrawals

[2]. “The company will reject all received items for which no prior authorization was issued”.

This policy sounds simple, but has a major impact on the receiving department, which no longer has to spend time tracking down the reasons for unauthorized deliveries, as well as the accounting department, which would otherwise have to search for and gain payment approval from whoever placed the delivery orders.

Best practice to be implemented:

  • Reject unplanned receipts

[3]. “All inventory transactions shall be recorded in the warehouse management system database within ___ minutes of their occurrence”.

By keeping the time requirement of this policy extremely short, it essentially forces the warehouse manager to convert all materials management data collection systems to on-line, real-time systems.

Best practice to be implemented:

  • Record inventory transactions with bar codes
  • Record inventory transactions with radio frequency communications
  • Track inventory with radio frequency identification
  • Eliminate all paper from inventory transactions
  • Eliminate all transaction backlogs


[4]. “The management team shall regularly review the company’s products, product options, and supporting parts structure to cancel unprofitable items and eliminate redundancy”.

This policy provides a foundation for regularly scheduled reviews designed to eliminate unprofitable products and corresponding levels of finished goods inventory, while also reducing raw materials inventory related to redundant parts.

Best practice to be implemented:

  • Reduce the number of products
  • Reduce the number of product options
  • Standardize parts


[5]. “The management team shall endeavor to reduce the company’s inventory investment to the minimum level, subject to constraints imposed by profitability, warranty, and customer service objectives”.

This policy reflects the reality of having some on-hand inventory, while still giving general support to the concept of inventory reduction.

Best practice to be implemented:

  • Drop ship inventory
  • Reduce safety stocks by accelerating the flow of internal information
  • Reduce safety stocks by shrinking supplier lead times
  • Use variable safety stocks for fluctuating demand
  • Cross-dock inventory
  • Use overnight delivery from a single location for selected items
  • Focus inventory reduction efforts on high-usage items


Payroll Policies for Best Practices

[1]. “The company will not issue advances on employee pay”.

This policy allows the accounting staff to avoid making paycheck prepayments to employees, thereby avoiding a number of subsequent payroll transaction steps.

Best practice to be implemented:

  • Disallow prepayments


[2]. “The company does not make purchases on behalf of employees”.

This policy keeps the accounting staff from making a series of deductions from employee paychecks to pay the company back for purchases made by the company on behalf of employees.

Best practice to be implemented:

  • Prohibit deductions for employee purchases


[3]. “Employees can carry a maximum of __ hours of unused vacation and sick time forward into the next calendar year”.

This policy caps the carryforward of vacation and sick time, so the risk of incurring an excessive vacation accrual is minimized if the accounting staff switches to an honor system to track this information.

Best practice to be implemented:

  • Use honor system to track vacation and sick time


[4]. “The company will provide access to computer kiosks for all employees”.

This policy allows employees to more easily gain access to payroll information over the Internet, which can include pay stubs, W-2 forms, all internal payroll forms, and direct maintenance of their own payroll information, flexible spending accounts, and pension information. Managers can also access self-service functions if this policy is implemented.

Best practice to be implemented:

  • Create employee self-service for payroll changes
  • Post forms on an intranet site
  • Issue electronic W-2 forms to employees
  • Outsource W-3 form creation and delivery
  • Post payroll remittances on company intranet
  • Automate vacation accruals
  • Install manager self-service
  • Publish answers to frequently asked questions on an intranet site

[5]. “All employees shall receive electronic payroll payments”.

This policy eliminates paper-based paychecks (with the exception of new hires and terminations), allowing the accounting staff to arrange for payments through the direct deposit system or a variety of debit card solutions.

Best practice to be implemented:

  • Offer clear cards to employees
  • Transfer payroll to debit card balances
  • Use direct deposit




    Jul 31, 2009 at 10:03 am

    Thanks so very much for your website, please don’t tire, keep the good work. I have recently landed an Accountant job, and would start the department from scratch. you notes have helped me a lot, and am so confident at my new work place, and I thank you so very much. However, still I have a question to Putra: Do you have any accounting forms(e.g editable journal entry docs, petty cash vouchers etc which you may send me for adoption????

  2. Putra

    Aug 1, 2009 at 4:07 am


    Congratulation for the “accountant” position. Well, I think i have some kinds transaction vocher form, but let me check my archives, If i can find it, I will post it here shortly.

    Meanwhile, I would recommend you to read this post [it may help too]:


  3. Maria Rosale

    Aug 2, 2009 at 6:14 pm

    Dear Putra-

    This website has help me so much to understand the accounting cylce but I’m still strugling with the T-Accounts. Do you have any remondation on how to master on illustrating t-account.


  4. Putra

    Aug 3, 2009 at 9:45 am

    Hi Maria,

    I am glad you’re helped.

    T-account is not a rocket science, but well understanding on this “recordkeeping-fundamental” is a big jump to the next level of accounting. It is good that you keep focus to be master on the T-account. Keep it so until you are able to do it inside-out.

    For a starter, I always recommend anyone to learn the double entry [debit and credit] first. You can read it here:

    Though, such technical skill needs alot excercises, trying various cases [scenarios].

    Good luck!

  5. Umesh Devadiga

    Aug 20, 2009 at 2:51 pm

    Dear Putra,

    Thank you indeed for your articles. It has helped me a lot in my professional career. I would appriciate if you could give me a practical example ( in a spead sheet ) of budgeting of an organisation.

    Thanks & regards,
    Umesh Devadiga,

  6. Vusi kunene

    Oct 17, 2011 at 2:42 pm

    hi putra i’m working in a plant Department (Equipment) i would like to know more on how to control my direct costs (eg. Responsibility Accounting , Standards Costing and how to construct perfomance Reports for this depart ment , Important ratio’s to be implementented. especially on variable costs (Operating costs , Tyre costs , spares , Consumables e.g grease , oil.

    Thank alot.

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