All small business owners know how vital cash flow is to their survival — and how managing their accounts receivables (AR) and accounts payables (AP) is the key to maintaining a healthy cash flow. In uncertain times like these, it can be harder to make sure AR and AP are in good shape.
Below are 11 ways to better manage accounts payables and accounts receivables.
How to Manage Accounts Payables
Obviously, your overall goal should be to have more receivables than payables, so it’s essential to keep your eye on how much you’re spending.
Review Your AP
Do you know where your money is going?
- Generally, accounts payable are your short-term debts, items you intend to pay off in the next 12 months. Longer-term debts are considered liabilities and are usually not included in AP. However, for purposes of managing cash flow, those payments must figure into your outflow. So, make note of all regular payments, such as your utilities, rent, insurance, Wi-Fi, payroll for employees, and payments to independent contractors, freelancers, and providers of professional services (accounts, lawyers), etc.
- Don’t forget the “little stuff,” like subscriptions, memberships, coffee for the office, SaaS subscriptions, etc.
- Are there seasonal expenditures you regularly make?
- Are you paying interest on your credit cards, outstanding loans, lines of credit?
After your review, think about how you can reduce any of these payments. Shop around for the best deals; consider negotiating with your suppliers and ask for better terms, extended pay-by dates, early payment discounts.
Do you know where your bills are?
It’s easy to lose paper invoices or misfile them. Human error is all too common in understaffed, overworked small businesses, leading to bills being paid late or not at all.
Before you pay an invoice, make sure the amount paid matches that on the invoice and that the products or services you’re paying for have been received.
It’s a good idea to update and reconcile your accounts every day, so nothing gets overlooked.
Create a Payment Approval Process
You need to define who at your business is allowed to make or authorize purchases. And no matter who you select, you should set spending limits.
This not only helps you manage your AP, but it can prevent in-house fraud, theft, and embezzlement. Spread the responsibilities around among several employees.
How to Manage Accounts Receivables
Do You Know Who You’re Doing Business With?
Before you enter into any business arrangement, you should check out the company you’re considering doing business with. Check their credit and financial history. Consider doing a background check.
Set Payment Terms
It’s important to set payment terms at the beginning of a relationship with another business. Will you offer early payment discounts? While that may incentivize your clients to pay you sooner, it will bring in less cash. Only you can decide if that trade-off is worth it.
As with your AP, you should stay on top of the process. What’s in your pipeline? Check your aging lists to make sure no one is falling behind on their payments. Create a process to follow-up with late payers to collect what they owe you.
AR & AP Solutions
Managing the accounts payable and receivable process is time-consuming, labor-intensive, and prone to human error. Many small businesses don’t have the bandwidth to handle it properly but still cling to manual and paper-based processes.
Experts agree that there are several ways small business owners can better manage accounts payables and receivables using electronic payment solutions.
Offer Payment Options
Electronic payment solutions, such as online banking, electronic funds transfer (EFT), and ACH are quicker and more reliable, and convenient. Processing checks electronically cost less than processing paper checks, so you’ll save money as well.
Electronic solutions also can reduce the possibility of fraud since fewer people are involved in the process.
Unlike paper invoicing and payments, when you use electronic solutions, nothing gets misfiled, overlooked, lost in the office or in the mail. And since no one at your business has to enter data manually, the chances of human error are considerably reduced.
Electronic payments are easier for you to monitor, as well.
Automate and Outsource Payments Processing Systems
The most efficient way to solve these issues is to outsource your AP and AR to a company that can do it all for you. Look for an all-in-one solution like Bill.com, where they take care of your AR by generating invoices and billing your clients and your AP by paying your bills.
Their system is automated, so there’s less risk of you missing or making late payments, forgetting to send invoices, or making data input errors.
Bill.com integrates with most accounting solutions like QuickBooks and other financial apps like Expensify.
And don’t worry, you’re not giving up control. Bill.com offers a cloud-based solution you can monitor your AP and AR anytime, from anywhere you have an internet connection.
The bottom line is as a small business owner you have a lot to do. Hopefully, this will be a recovery year for many businesses, and your time is better spent developing ideas and on sales and marketing. You can free up your time and better manage accounts payables and receivables by outsourcing to Bill.com. Give it a try, risk-free today!