Accounts Payable is not one of the first things you think about when starting a new business. One of the greatest feelings you get when you have your business up and running is when you get paid for the first time. You are euphoric that people are willing to pay for the product or service that you provide but don’t start making retirement plans yet or thinking about your next big spend.
The money you collect is technically not all yours, at least not yet. This is where accounts payable come in – You have an obligation to all those people your company owes. By definition, Accounts Payable are monies owed by a company to its suppliers, staff or Government and is reflected as a liability on the company’s balance sheet. The accounts payable process can be conducted by an accounts payable department in a large enterprise or an accounts payable officer in a medium-sized firm. Perhaps some entrepreneurs carry out this task themselves; however, it “all boils down” to your personal preferences when deciding who will handle the accounts payable process within your business.
Payables, like any other aspect of running a business, must be properly managed to ensure the success of any business. Payables may be short-term (under thirty days), medium-term (up to ninety days) or long-term (over twelve months) but in all cases, they are an obligation placed on the business. When this process is managed, you are better able to manage your cash flow by structuring when debts are paid.
If you maintain an efficient and effective accounts payable process, it will reflect in your company’s cash position, credit rating and relationship with your suppliers.
These tips will allow you to maintain an effective accounts payable process and reap extraordinary benefits for your business.
Create a schedule for payables
Different bills become due at different times during the month, so it is important to manage your cash flow so that bills are paid on time. One entrepreneur describes her process as follows:
- Pay the bills that keep you in business first. This could include your electricity, internet, telephone and water. Each business may have a different set here.
- Pay your staff next;
- Pay your taxes; and
- All other bills last.
Whatever your process it is important that all relevant processes such as accounts receivables and payables line up with each other.
Be timely and accurate
Time is of the essence. Have you ever missed a payment deadline? Well, a missed deadline can place constraints on you, both as an individual and as a business. In order to ensure that your accounts payable transactions run smoothly at all times, you should set a scheduled (date and time) for processing transactions. It is recommended that you process all accounts payable transactions on a weekly basis. You should also be determined and focused and ensure that you adhere to the scheduled date. If necessary, you should advise suppliers of the deadline for processing accounts payable transactions in an effort to ensure that there are no glitches along the way.
It is very important to stick to the terms agreed to for payables as failure could lead to poor credit ratings, lawsuits, and penalties. For record keeping the liability must be recorded the same date that credit is received.
The accuracy of your company’s financial statement is dependent on your accounts payable process. This process should include the timely processing of vendor invoices, accurate recording in the general ledger accounts, as well as the accrual of obligations and expenses that have not yet been completely processed. A detailed review of things like purchase orders, receiving reports, invoices and contracts are necessary to ensure that only legitimate and accurate amounts are entered into the accounting system.
Create and Maintain High Communication Standards
Communication is one of the most important aspects within a business, regardless of the size. Ensure that there is an open line of communication between managers, staff members, and suppliers. Poor communication or a lack thereof can cause serious issues. A delay in the transaction process that is not communicated to the relevant parties can prove to be detrimental. For example, a supplier may lose trust and confidence in you and you may come off as someone that is not dedicated and committed to their word; which will in turn lead to a negative corporate image for your business.
Maintain a Close Relationship with Suppliers
Supplier Relationship Management is just as important as Customer Relationship Management. Why? Well, for starters, it creates a win-win situation for your business and your suppliers. Suppliers would be able to deliver superior quality to you and would possibly offer you deals and discounts on a regular basis. Suppliers would feel a sense of belonging and commitment to your business and would ensure that they provide superior quality at all times.
What strategies do you implement to ensure that your accounts payable process runs smoothly? Share your comments with us.
