Effective internal controls for managing trade receivables aim to prevent bad debts by assessing risk upfront and taking prompt action when payments are overdue.

1. Credit checks (A) are a fundamental preventative control to evaluate a new customer's ability and willingness to pay before granting credit.

2. Regular review of an aged analysis (D) is a detective control that enables timely follow-up on overdue accounts, which is crucial for preventing them from becoming uncollectible.

3. Stopping further sales to overdue customers (E) is a direct preventative action that contains the company's financial exposure to a customer who has already demonstrated payment difficulties, preventing the potential bad debt from increasing.

B. Allowing sales staff to override credit limits creates a severe conflict of interest and undermines the control, as their primary incentive is sales volume, not credit risk.

C. Authorisation of new customers should be performed by a credit control function, independent of the sales team, to ensure an objective assessment of creditworthiness.

1. Drury, C. (2018). Management and Cost Accounting (10th ed.). Cengage Learning EMEA. In Chapter 22, which discusses the management of working capital, the text emphasizes the importance of a sound credit policy. This includes assessing the creditworthiness of new customers (supporting A), monitoring outstanding debts through aged analysis (supporting D), and having a clear procedure for overdue debts, which includes stopping further credit (supporting E). (See pp. 630-635).

2. CIMA. (2019). CIMA P3 Risk Management Study Text. Kaplan Publishing. Chapter 10, "Managing Working Capital," details the components of credit management. It specifies that credit assessment (credit checks) is a key step before granting credit. It also outlines that monitoring systems, such as aged receivables analysis, and robust collection policies, including stopping supply to delinquent accounts, are essential to minimize bad debt risk. The text also highlights the need for segregation of duties, making sales staff unsuitable for credit authorisation (invalidating B and C).

3. Bhimani, A., Horngren, C. T., Datar, S. M., & Rajan, M. V. (2015). Management and Cost Accounting (6th ed.). Pearson Education. Chapter 18, "Managing working capital," explains that an effective credit policy involves three key elements: credit analysis, setting credit limits, and establishing collection policy. The text explicitly warns against conflicts of interest where sales personnel can influence credit decisions (making B and C poor controls) and advocates for strict follow-up procedures based on aged analysis (supporting D and E). (See Section: 'Managing accounts receivable').