Part of being an effective leader of your small business is to be able to make sense of the numbers and to know that cash is king!  Understanding accounts payable is important because your business must be able to understand how to properly manage accounts payable as in order for your business to expand and grow.

As an entrepreneur, paying bills is a necessary part of doing business.  Establishing effective accounts payable management procedures is one of the most important things that you can do in order to put your company on solid financial ground.

Some accounts payable practices for you to be aware of are:

  • Pay Bills On time – Apart from the obvious benefit of this, paying bills on time may even allow a business to negotiate discounts with a vendor. Your vendors are arguably just as much of an asset to your business as your customer base.  Staying on good terms with your vendors can allow you to potentially ask for discounts or other favors in the future if necessary.
    • If you use Quickbooks or Quickbooks Online, we recommend is to get set up with their Online Bill Pay service which integrates directly with your Quickbooks and it allows you to pay bills in a similar manner as your bank’s bill pay service. You can have their back-end payment processing center pay your bill either by ACH or by check and the transactions automatically match up in Quickbooks.
  • Leverage Technology – today, there are many technology solutions available to help a business manage paying its bills. The days of not knowing what bills you have on any given month should be a thing of the past.  Using anything from simple spreadsheets to sophisticated software can make managing this task easier.  Also, bank services such as automatic payment solutions can be utilized to automate and streamline this process.  Leveraging technology can be a simple, but effective way to help with your cash flow.
    • We recommend using Quickbooks Online to help manage you’re A/P. there are several great reports available to help you more easily manage you’re A/P:
      • A/P Aging Summary – Shows unpaid bills for the current period and for the last 30, 60 and 90+ days so you can see how long they’ve been open (outstanding).
      • Vendor Balance Detail – Lists all the bills that make up the total amount you owe each vendor (balance).
      • Bill Payment List – Shows all the bills you paid during a selected date range.
      • A/P Aging Detail – Lists all your unpaid bills, grouped by when the bill was due (aging period). Includes due dates and amounts.
      • Unpaid Bills – Shows your unpaid bills, their due dates, and days past due so you can avoid late payments.
      • Vendor Balance Summary – Shows the total amount you owe each vendor.
    • Manage Your Vendors – Vendors need you just as much as you need them. Maintaining a relationship with your vendors can allow you to potentially get a favor in the future such as a billing date extension.  Also, you can have a better ability to potentially negotiate or achieve small discounts on the invoice for paying early.
      • If you use Quickbooks or Quickbooks Online, there are several convenient reports that you can use to help you manage your vendors. They include:
        • Vendor Contact List – Lists each vendor’s name, company, phone number, email, mailing address, and account number.
        • Expenses by Vendor Summary – This report shows your total expenses for each vendor.
      • Guard Against Fraud – This is often an overlooked issue, but it is always important to guard against fraud within your company when dealing with vendors. One example of fraud can be a scenario whereby an employee opens up a new vendor account that is fraudulent with the intention of benefiting from the payments that the company makes to that vendor.  There should always be a system of checks-and-balances to minimize the risk of internal fraud.  Another fraud is the old fashioned writing of a check that is unauthorized.
        • We recommend implementing the use of an online bill pay solution either through your bank or through your accounting system such as QuickBooks. If you can minimize the need to have checks in the office then you can minimize the risk of check fraud.
      • Pay down High Interest debts – This may seem simple, but putting a plan in place to pay down high interest debt will help you maximize the management of cash flow. It is always a good idea to have a spreadsheet handy of the company’s debt obligations which includes the interest rates.  Having this information close by enables the business to make better financial decisions regarding which debts should be paid off first.

If you are finding yourself needing more guidance on how to manage your Accounts Payable, we are able to help with solutions that range from general bookkeeping to CFO advice.