When trying to manage cash flow, most business owners investigate ways to make accounts receivables (those incoming payments) work better and faster. But along with speeding up the receivables, it's good to look at ways to better manage the payables.
Here are 4 ways to get payments out on time and at less cost.
In accounting, the more you can automate, the less data entry and human error you'll have to deal with. This means not only making things go faster, but also making them more accurate. Automating accounts payable can be started simply by identifying recurring payments and instructing your software to generate an invoice, purchase order, or payment at the same time each month.
To really automate processing, consider switching to a paperless payables system. Paper invoices are scanned, and the digitized version can be used to enter the data into your system (or even entered by smart software) and receive approvals even from mangers who are in another location. You can use a simple email approval system, but accounting software packages are increasingly including an "electronic signature" method by which items are automatically routed to different people throughout the chain.
With over 50 years of experience in accounting, Williams & Associates Tax Services in Wilmington can help you use your own software to create a paperless system. They can also help with other automating tasks like standardizing your line item naming and creating vendor-specific terminology on paperwork.
Use Payment Schedules
Most accounts payable software offers the ability to assign a due date for payment as you enter the invoice. Noting this due date and entering it correctly will help you time your payments better. It prevents you from paying invoices before they're even due or allowing any to go beyond their terms. Print payables reports on a regular basis so that you can understand your cash flow needs over the week, month, and beyond.
As you enter payment schedules, be sure to take advantage of any invoices offering early payment discounts. While they may seem small individually, these .5% to 10% discounts add up and can rapidly reduce your costs.
Communication with vendors is key to getting all your invoices processed in a timely manner and paid correctly. Vendors generally want to get paid, so they are often happy to answer questions, adjust some of their processes, or alter terminology if it will help toward that goal. The first step to arranging those positive adjustments is to have a good line of communication with the vendor.
Your accounts payable department or technicians should know how to reach vendors, salespeople, and accounts receivable managers at all of your major suppliers. They should also be able to directly contact your internal people responsible for purchasing, selling, and managing departments. Allowing employees to talk directly about approval questions is the easiest way to speed up processing with no extra investment.
One of the biggest logjams at many small companies is trying to get approval for unusual invoices. The fewer people that your payables technician has to contact before entering an invoice for payment, the faster it will go and the more likely you are to save money.
Using a purchase order system generates written pre-approval that takes the guesswork out of invoice payment. Even though it may seem like an unnecessary extra step for a small business, it can help to keep things running smoothly when you have multiple people ordering, are on the road a lot, or when you want to control expenses better.
To be sure, improving your accounts payable processes may not be a quick fix for low cash flow. It is, though, an investment in the future of your business by allowing it to plan better and to meet the changing needs of the business world.