The way you manage different aspects of your small business will have either a positive or negative effect on your cash flow. Mismanagement of one aspect can lead to tight budgets that limit your company’s growth, its options, hiring capacity, ability to lure top talent, develop products that address pain points, and others. You’ll need to pay your dues on time so that you can maintain a positive cash flow. Accounts payable management is an important part of your operations. Streamlined invoicing, collection, improved payment terms, and others provide you with financial flexibility that enables you to grow your small business.
These accounts payable management tips can help you improve this aspect of your small business.
A complex payment system increases the possibility of mistakes. Review your workflow and find ways to streamline and simplify it for your employees. Identify bottlenecks in the invoicing, reminders, reporting, problem resolving, approval process and other steps to determine how you can make them more efficient. Consider investing in software that automates some of the tasks in the pipeline. Paperwork and manual inputs slow your workflows down. Automated systems reduce processing times while keeping reports and documents accurate. It also reduces the additional administrative work of your employees. They can direct their attention to tasks within their expertise and experience level. Simpler workflows are easy to teach to onboarding staff and easy to implement for current employees.
Set Priorities and Organize Invoices
Part of good cash flow management is paying your suppliers on time. You can achieve this by organizing and prioritizing your invoices. Late payments may have a negative effect on your business relationships. You might not get better terms or discounts whenever you try to renegotiate a contract. The practical approach is to pay invoices according to payment terms and due date. You must also match and verify an invoice with its corresponding order. Some suppliers might also provide you with a discount for early payments. It’s easier to manage all these tasks with an automated system and software. You could create lists and/or reports that include important due dates, contact information and payment terms. These allow you to fulfill your obligations on time.
It’s possible to lose paper documents to negligence, natural disasters, and theft. Reduce your risk by going paperless. Accounting software such as Xero and QuickBooks Online allow you to automate some accounting tasks and store your financial data in the cloud. Cloud storage protects your information from cyber threats, natural disasters, or misplacement. You have easy and direct access to your data whenever you need them. You can update in real-time when you need to create reports and send them to your employees. The system can organize and manage your payables, and keep you updated about outstanding due dates and bills you already paid.
Update Supplier Information
Your supplier might change contact information, move to a new address, permanently or temporarily close, or change owners. You might be sending a payment to a non-existent business already or your payments become invalid because of wrong details. A simple email or phone call can solve this problem. You also have the option to set up a system that allows your business partners to update their information.
Establish Measures for Efficiency
You won’t know the effectiveness of your accounts payable management practices if you lack the metrics to measure them. Monitor previous processes and compare them with the changes you implement. Doing so allows you to determine if your new practices are better than your old ones. Some of the metrics you can use are cost per invoice, time spent handling disputes with suppliers, days payable outstanding, invoices you paid before or on their due date, rate of payment accuracy, and others. The changes in these KPIs provide you with insights on how to further improve your accounts payable processes.
Fraud Detection Processes
Fraudulent transactions are a problem you need to be aware of whenever you want to improve your accounts payable processes. Your employees, business partners and cybercriminals are potential suspects of fraud. Paper processes are susceptible to fraudulent payments and transactions because a person can forge them or make duplicates. Some resort to other tactics such as phishing or redirecting you to a suspicious page. Reduce your small business’ risk by using cloud technology and automating tasks. Storing information in the cloud reduces the threat of data theft. Accounting software also allows you to monitor transactions and changes in your data in real time. You’ll be able to detect fraud sooner and identify the culprits.
Payment Terms Standardization
Standardized payment terms provide you with control of your small business’ cash flow, manage your capital, and improve the processing of payments. It streamlines your workflows and reduces the stress of handling suppliers that want different payment terms. However, be flexible enough to allow partners and suppliers to renegotiate and get better terms. The standardized terms you establish serve as a guideline you can refer to during negotiations. It’s up to you how far you allow a supplier to deviate from it.
Create Effective Resolution Policies
Resolving payment issues, methods and complaints consume time and resources. The team managing accounts payables may be dealing with the same problems repeatedly. For such instances, create resolution policies your employees can follow. Some of the policies you can implement include when and how to respond, scheduling follow-ups, answers to frequently asked questions and others. Including tracking procedures and stages of resolution streamline your policies and simplify implementation.
Streamline and Distinguish Roles
More people having access and control over your accounts payables increase the risk of mistakes and duplication. Eliminate or reduce these by streamlining roles. Establish specific roles for each employee within the accounts payable team. Designate leaders that oversee the entire process, this could be you and one or two other persons with experience in accounting. Having control over the roles and the process enables you to identify bottlenecks, potential fraud, and inefficiencies.
These accounts payable management best practices improve your process and efficiency. If you need assistance with bookkeeping and other similar tasks, you can count on Robookkeeper. We have a team of experienced virtual bookkeepers. We offer quality and first-rate outsourced bookkeeping services for small businesses.