Enhancing Financial Resilience: A Critical Evaluation of Internal Control Systems for Mitigating Bad Debt Exposure at PT Laris Abadi Indonesia

Abstract

Aims: To examine the efficacy of accounts receivable internal control systems in reducing bad debt risk at PT Laris Abadi Indonesia, identify deficiencies in current internal control frameworks, and provide practical recommendations for implementing robust control mechanisms that balance credit accessibility with prudent risk management. Study Design: Descriptive qualitative research employing a single-case study approach focused on PT Laris Abadi Indonesia's accounts receivable management practices and internal control systems. Place and Duration of Study: PT Laris Abadi Indonesia, conducted over six months from January to June 2024. Methodology: The research methodology applied three main data collection techniques: (1) Systematic observation of existing accounts receivable processes and workflow procedures; (2) In-depth structured interviews with key personnel including finance staff, credit department employees, and senior management to gather insights on current practices and challenges; (3) Comprehensive documentation analysis examining internal control procedures, financial records, credit policies, and collection protocols. Data analysis employed thematic analysis to identify patterns and deficiencies in the internal control framework, with particular focus on credit assessment protocols, payment monitoring mechanisms, and collection procedures. Results: The study revealed significant deficiencies in PT Laris Abadi Indonesia's current internal control framework. Three critical weaknesses were identified: inadequate credit assessment protocols, insufficient payment monitoring mechanisms, and absence of structured collection procedures. These shortcomings resulted in substantially extended debt settlement periods and increased financial vulnerability with elevated bad debt exposure. Conclusion: Strategically designed internal control systems can significantly enhance accounts receivable management and minimize financial risk. The research contributes empirical evidence demonstrating the relationship between internal control quality and bad debt mitigation. Implementation of comprehensive credit evaluation frameworks, automated payment monitoring systems, and structured collection protocols is essential for strengthening organizational financial resilience while maintaining competitive credit accessibility.