If you’ve ever found yourself in the middle of your company’s bills, worried about the threat of delays and penalties, don’t worry, you’re not alone.
Account payable management is crucial to keeping your company’s finances in order and enjoying a good cash flow.
Here, you’ll find sensible tips on how to pay your bills properly without financial problems and stress.
What is a company’s accounts payable?
Accounts payable” is a term that indicates the monetary dues to be met by a firm towards products, services or borrowed amounts.
This consists of paying the suppliers for materials, third-party services, salaries to employees, utility payments, installment on loan, as well as fiscal and tax liabilities.
In short, these are the monetary obligations that the company has to fulfill in order to maintain its operations uninterrupted.
It should be noted that every type of company has a varying list of accounts payable based on its specific operations and requirements.
How does the accounts payable process work?
The process of accounts payable entails multiple steps, ranging from receiving bills, through organization, to making payment.
The company first receives bills from its suppliers and other accounts payable and verifies the correctness of the details. Invoices are then documented in a tracking system.
Prior to the due date, the concerned department makes the payment, verifies the funds availability and settles within the time frame specified.
There are several approaches by which firms can handle their financial obligations, such as manual handling, utilization of applications or the outsourcing mechanism.
Manual process may be very time-consuming as well as liable to errors, while software may facilitate automation of this activity as well as curtail the opportunity for errors to occur.
Accounts payable: advantages of good financial control
If a businessperson only aims to raise revenue, they risk ending up defaulting on their financial obligations and becoming unstable due to the effects of default.
On top of that, a good payment record can cement good relations with suppliers, resulting in improved trading terms.
Thus, keeping your accounts current is a step that goes a long way towards the well-being of your business and can be determinative of the success of your operations.
How to organize bills payable: check out important tips
We have listed these steps to make this task more practical and efficient. Check it out:
Prioritize important payments
All accounts aren’t equal. Some are given priority over others because of the essentials nature of the products or services being offered.
Identify and prioritize major payments to ensure business operations aren’t impacted.
Avoid delays and fines
Late payment can attract fines and interest charges that affect your company’s profitability adversely.
Avoid such pitfalls by developing a reminder system for keeping dates and preventing avoidable delays.
Separate personal expenses
In micro and small enterprises, it is common for the owner’s personal funds to be blended with those of the business.
While common, this kind of practice is highly detrimental to the financial structure of the company.
Besides unbalancing the cash flow and generating a number of accounting issues, blending personal and corporate funds can lead to a significant loss of control over accounts payable.
Hence, make sure that the obligations of the company are always settled with funds from its operations.
Trade when you need to
If your business is facing financial difficulties, don’t shy away from negotiating payment terms with creditors and suppliers.
Most times, they would prefer a small amount later than nothing. Talk to them honestly and look for solutions that benefit both parties.
Keep detailed records of invoices and payments
Keeping accurate records of payments and invoices is a fundamental practice of sound accounts payable administration.
By recording every transaction in full detail, you create a good audit trail that could prove useful in case of discrepancies or dispute.
Record due date, amount, vendors, and any special terms related to each invoice.
These records not only guarantee payments’ accuracy, but also facilitate more in-depth analysis of the company’s expenditure patterns.
Consider adopting an early payment discount policy
One practical way to optimize your finances is to consider implementing an early payment discount policy.
This can benefit both your company and your suppliers.
By negotiating incentives for paying ahead of schedule, you can reduce your overall expense.
On the other hand, suppliers often appreciate the more stable cash flow that early payments provide.
Make sure you communicate this policy clearly to your suppliers to ensure both sides are aligned and benefit.
Automate the process
Automating the accounts payable process is a smart strategy to avoid errors and streamline financial operations.
There are numerous automation tools that allow you to schedule payments, automatically send due date reminders and control transactions.
By reducing the number of manual tasks, you reduce the risk of delays and discrepancies.
Remember to choose a reliable system that integrates well with your operations and ensures the security of your company’s financial data.
Ways to organize accounts payable
There are several ways to organize your bills, each with its own advantages. Here are two popular options:
Spreadsheets
Using spreadsheets, such as Excel, can be an effective way to keep track of accounts payable.
Invoice details, such as due dates and amounts, are organized into columns and can be easily located and cross-referenced.
However, this approach can become cumbersome as the company grows and handles more transactions.
Management software
Use of financial management software emerges as a more stronger option.
This tool enables invoicing to be recorded centrally, payment reminders automated, and detailed reports generated.
Implementation of this technology is particularly beneficial for businesses with a high number of transactions.
Advantages of the management system in company accounts
Implementing a management system in the company’s accounts brings several advantages, including:
Efficiency: Automating processes reduces errors and saves time.
Organization: all data is centralized and easily accessible.
Analysis: Detailed reports allow for more accurate analysis of finances.
Scalability: The system can grow as the company expands.