What is financial policy?

The guidelines that control an organization's financial operations are known as its financial policies. The overall objectives of a company should be in line with properly-drafted financial policies. Additionally, they should be written in a way that allows for flexibility within the policy and is clear enough for people across the business to understand.

Better financial management, risk reduction, and integration of financial activities with a company's highlighted objectives can all be achieved with the aid of strong financial policies and procedures. It's essential to consider what financial policies and procedures are, their intended purposes and advantages, how and when to adopt them, and when they should be assessed before they are created and adopted.

Roles, authority, and duties for financial management operations and decisions are made clear by financial policies. 

Any organization, regardless matter how big or small, would benefit from developing and adopting a documented financial policy. Employees will likely function under a set of assumptions in the absence of an adopted policy.

The financial policy's objective is to specify and record the manner in which the board desires that financial management operations be conducted. Every financial policy must focus on the following five areas in order to achieve this:

Delegating some authority to senior staff and assigning responsibility for required and routine financial decisions and actions

       i.            Policy statement regarding insider trading or conflicts of interest

     ii.            Clear authorization to spend money, including check signing, approval, and payroll

  iii.            Clearly defined delegation of power to sign contracts

  iv.            Clearly states who is in charge of maintaining proper financial records.

Financial Policy & Procedure

The guidelines or guiding principles governing a company's accounting and financial procedures are known as financial policies. They ought to represent the culture and values of any company. Procedures outline the requirements for how company staff are to follow its policies. Financial policies and procedures may include how to manage cash, debt collection, or payments from customers and clients, depending on the type of business or company.

Financial processes specify how specific tasks are carried out and/or rules are followed. They can be presented as written explanations, checklists, or flowcharts. Whatever the format, they should concisely provide the "how to" instructions to the person or people responsible for conducting those activities. Determining who plays what function in the procedure, when it has to be used, and how it should be used are thus some pertinent factors to take into account while establishing procedures.

Roles and responsibilities in an organization's financial sector will be made clear through effective policies and procedures. All participants will be more aware of the framework and boundaries which are in place for them to function if these duties, authorities, and responsibilities are clearly defined.

Goals & Purposes of Financial Policies and Procedures

      I.            Protection of Assets

An implementation of internal control is defined and documented by policies and procedures in order to protect company assets. This entails ensuring there is sufficient job separation, establishing authorization rules and boundaries, and restricting access to the company's assets.

   II.            Regular Recordkeeping

Clear documentation of procedures lays the groundwork for accurate processing transactions over time and across the company. Furthermore, the possibility that organizations rely on knowledge assets, which can be lost as a result of employee turnover, is decreased by having written policies and procedures.

III.            Strictly adhere to regulatory requirements

Numerous non-profit groups are given federal grants that mandate they adhere to the Uniform Guidance's rules (2 CFR 200). In many cases, the Uniform Guidance expressly states that the organization must have documented policies and/or procedures in place to make sure that certain objectives of the guidance are taken into account by its financial operations.

IV.            Financial Reporting that Is Accurate, Reliable, and Useful

The proper documentation of transactions in compliance with the relevant accounting standards and the organizational financial reporting structure is supported by compliance to the organization's financial policies and procedures. By establishing a good financial reporting system, the company’s decisions are guaranteed prompt access to the financial data required for good business decisions.

   V.            Implementation

If the benefits of the adoption of financial policies must be realized, it is necessary that members of staff have access to and training programs on the company's financial policies and procedures. The policies must also be consistently and routinely enforced at all organizational levels. If not, the organization runs the danger of not adhering to its policies and losing the significance that was intended while they were established.

In the end, the board's responsibility to the organization is to make sure that its appropriate action is taken across all levels. Also, to protect its resources, it is vital to guarantee that there are reliable, well-documented policies and procedures. These must be conveyed, implemented, reviewed, and modified as necessary. 

VI.            Continual Evaluation and Updates

An organization's financial policies and procedures must periodically reviewed and updated. The rules that were in place will probably need to be changed as the organization grows and becomes more complex, adopt new systems, or are vulnerable to changes in regulations. Furthermore, it's necessary to routinely implement any guiding principles into the financial policies and procedures for continuous improvement.

Conclusion

Long-term organization growth depends on a well-established financial policy. If an organization keeps its financial aspects open and transparent fashion, it can demonstrate solid growth and increase its profitability. Higher rate of returns on invested capital are guaranteed by good financial management and financial policy. Every business develops its financing strategy in accordance with its capabilities, demands, suitability, and operating environment.