The “Customers” line of your balance sheet shows 85 million CFA francs. The figure is right in your books. But nothing yet proves that your customers actually owe you that amount. An invoice already paid but badly matched, a credit note never entered, a disputed delivery: each of these inflates the balance without the trial balance showing it. Circularisation is the check that turns that figure from a claim into a fact.
What circularisation protects
To circularise is to ask a customer or supplier in writing to confirm the balance of their account in your books at a given date. Their reply is external evidence: it does not come from your books, it confirms or contradicts them.
It detects what your own checks cannot see:
- receivables that no longer exist: an invoice paid but the payment applied to another customer, a credit note granted by a salesperson and never posted;
- disputed receivables: the customer does not deny the delivery but refuses to pay part of the invoice;
- forgotten payables: a supplier invoice received by a department and never passed on to accounting;
- misappropriation: a diverted receipt leaves the receivable open on the balance sheet. The customer knows they paid.
Why it is the finance team’s business, not only the auditor’s
Circularisation is often associated with the statutory auditor. The international standard on auditing ISA 505 does cover external confirmations, and requires the auditor to keep control over sending and receiving the requests.
But the finance team has its own reasons to confirm balances, before any audit:
- Cash is managed on outstanding balances. A cash forecast built on wrong receivables announces receipts that will never come.
- Your bank finances your receivables. Overdraft, discounting, factoring: the quality of your receivables drives the credit you get.
- Impairments must be right. Under SYSCOHADA, a doubtful receivable moves to account 416 and is impaired in account 491. Without confirmation, you impair blindly, or not at all.
- A difference found in November is fixed in an hour. The same difference found by the auditor in March, after year end, costs an adjusting entry, an explanation and some of their trust.
How most companies run it today
In most SMEs in the OHADA zone, circularisation looks like this: export the subsidiary trial balance to Excel, prepare a template letter in Word, merge the two, print, sign, send. Replies are tracked in a spreadsheet, when they are tracked.
This method has four recurring flaws:
| Flaw | Consequence |
|---|---|
| The letter’s balance does not match the ledger (matching not up to date, entries posted after the export) | The contact says “no” to a figure you can no longer justify. |
| The letter gives a balance without the detail of open items | The contact cannot identify the difference; they do not reply, or reply “no” with no explanation. |
| No clear reply slip | Replies come by phone or email, unsigned, so with no evidential value. |
| No reasoned selection | You write to everyone, follow-ups run out, large balances are no better covered than small ones. |
The six-step method
1. Set the cut-off date
Usually the year-end date, or a nearby month end for an interim circularisation. Every balance sent must be stated at the same date.
2. Choose the contacts
A reasoned selection beats a mass mailing:
- the largest balances, which cover most of the line;
- balances over 90 days in the aged balance;
- balances in the wrong direction: a customer in credit, a supplier in debit;
- contacts with a zero balance but heavy activity during the year;
- contacts in dispute or whose payment delays are lengthening.
3. Prepare accurate balances
Before sending, match the accounts: every payment matched to its invoice. The balance sent must be exactly the ledger balance at the cut-off date, with the list of items that make it up.
4. Send a usable request
A good request contains the balance and its direction (“you owe us” or “we owe you”), the open invoices and credit notes, a reply slip with both options (“we confirm” or “we do not confirm, our balance is…”) and space for differences, plus the signature and stamp of both parties. Send it in the contact’s language: an English-speaking supplier replies faster to an English document.
5. Remind once
Fifteen days to reply, one reminder, then alternative procedures for non-replies: payments received after the cut-off date, signed delivery notes, contracts.
6. Analyse each difference
| Cause of the difference | Treatment |
|---|---|
| Payment in transit at the cut-off date | None, if the payment is indeed received after the date. |
| Invoice not received by the contact | Resend the invoice; check it was actually issued. |
| Unposted credit note | Post the credit note, on the basis of the document. |
| Dispute over an invoice | Assess the risk; impair if needed. |
| Unexplained difference | Ask for the contact’s statement and tick it line by line. |
Two indicators sum up the campaign: the response rate, and the share of the line confirmed by amount. A campaign that confirms 80% of receivables with ten letters beats a hundred-letter campaign that confirms 40%.
How we organise it at SynkriaOps
In SynkriaOps, the balance confirmation request is produced from the customer or supplier profile, by choosing the Balance confirmation template and the cut-off date. The document takes the ledger balance at that date, its direction, the items still open, the ageing of the balance, a reply slip and signature blocks. It comes out as PDF or Excel, in French or English.
Two safeguards avoid the flaws of the Word and Excel method. First, a document whose figures would not match the account balance is never produced: you never send a wrong balance. Second, an accountant signed in from their firm produces the request in the name of the firm, on behalf of their client, with the firm’s stamp: the reply can come straight back to them.
To choose contacts, the subsidiary and aged balances list the large, old and wrong-direction balances. Each contact’s profile also shows their actual payment delay and flags when it lengthens.
The step-by-step guides are in the help centre:
- Balance confirmation: circularising a customer or supplier;
- Printing a contact’s documents;
- Reading a customer or supplier profile;
- Viewing the general, subsidiary and aged balances.
Also read: Closing a SYSCOHADA fiscal year: the 5 most expensive traps and Chasing customers and recovering unpaid invoices.