Accounts payable (AP) is a significant part of a business’s financial health. It is responsible for accurately tracking what’s owed to your suppliers and ensuring that all payments are made. In the absence of well-managed accounts payable, your cash flow is going to take a hit. And poor cash flow management is one of the major reasons most small businesses fail.
Accounts payable is one of the primary elements of working capital, no matter the size of the firm, and should be managed accurately. Otherwise, you won’t be able to produce an accurate balance sheet, which will adversely affect your business decisions.
If you’re a small business owner struggling to manage your accounts payable process, here are a few tips.
Making a handsome profit isn’t enough to guarantee your business’s growth. You must also learn to spend the money wisely so your organization has adequate cash flow. That’s why you need to manage your accounts payable process efficiently. Otherwise, it can hamper your sustainability.
1) Simplify the Process
A complicated accounts payable process invites errors and discrepancies. First, simplify it by reducing check runs to two per month and having invoice backup ready when your accounting staff prepares said runs. To avoid duplicate or missed payments, make sure the invoices are approved by the concerned departments before coming to the accounts payable team.
2) Standardize the AP Workflow
Standardizing any process provides structured methods and reliable data that save time and reduce mistakes. A standardized invoice management system helps you to easily track when you receive a bill, when you pay it, and which vendor payments are due. For example, keep a separate place to store invoices. Then, arrange them in the order of priority of due dates (closest date first).
3) Go Paperless
Lengthy processing times and reams of paper are just a couple of the challenges faced by AP professionals. Your better bet is to go paperless. Switch to online billing from paper to help you avoid late payments in case the paper copy is lost or damaged; likewise, encourage your vendors to email invoices. This will ensure that they’re all in the same place (in the cloud) and eliminate the risk of moisture or pests damaging them.
4) Use Accounts Payable Software
Automating your AP process by adopting the latest AP software (like QuickBooks, FreshBooks, or Xero) is a great way to eliminate late payments, store invoices, and reduce invoice processing times. The best thing about accounts payable software is that it saves time as it exponentially quickens invoice processing and approvals. It also provides a coordinated system for AP automation of tasks such as invoice processing, payables approvals, and executing payments. With the help of AP software, you eliminate human error and keep track of every financial obligation. You also have full access to the payment cycle and can access the system remotely from your computer or mobile, no matter your location.
5) Strengthen Your Bond with Vendors
Your relationships with your vendors play a vital role in your accounts payable management. The better those relationships, the more benefits you reap. After all, vendors will and can pull contracts from your business if they find it difficult to work with you. That’s why you should strengthen those professional bonds by paying on time. If you’re unable to, make sure you inform them. If possible, make early payments. This will help you deal with many issues that can impact your AP management, like getting due dates delayed, needing supplies within a deadline, and taking advantage of discounts. Remember, a healthy bond with your vendors can help you broaden your network and increase your credibility.
6) Outsource Accounts Payable
Another way to streamline your accounts payable process is to outsource it to a reliable service provider. When you hire accounts payable services, you have all the resources you need to optimize the process, including automation, experienced professionals, and reporting tools. Instead of hiring a team of bookkeepers, purchasing software, and acquiring tools, you can access all these benefits at a fraction of the cost. Additionally, your AP will receive a lot of attention, especially if you’re a small business owner who doesn’t have a dedicated team to take care of that process. In other words, by outsourcing your accounts payable you get many benefits, including:
● Experienced professionals doing the same job at a lower cost
● An automated process to ensure quick turnaround and efficiency
● A dedicated team
● Real-time access to your AP information
● Minimal errors
● Increased data security
7) Have a Cash Reserve
Business is full of uncertainties. You never know when financial crises will happen. If your business runs into trouble, you may not be able to pay your vendors on time, thus spoiling your reputation and credibility. Having cash in reserve can keep you paying them, instead of missing payments and incurring debts and late fees. Fill the emergency reserve little by little for use in tough times. We suggest having cash reserves to cover three to six months’ worth of expenses. Anything less can leave you vulnerable in an emergency and too much can be costly for your business.
The key to efficient accounts payable management is the perfect combination of automation, the human touch, foresightedness, and efficient use of resources. There are many ways to optimize your AP process. These include using accounting software that streamlines invoices and makes them easier to track and pay. In short, you can mitigate the adverse effects of late payments. Use the tips mentioned here and you’ll soon see the difference.
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