Your business will incur bills that you need to pay. Failure to pay your dues hurt your company and limit its growth. Not paying on time makes a negative impression on potential business partners. You’ll have a difficult time getting a loan or credit if other companies know that you don’t pay your dues on time. Avoid delays in payment by improving your accounts payable processes.
These are some of the best practices you can implement to improve your company’s accounts payable processes.
Standardize Your Processes
A repetitive and simple process improves payment times and reduces or eliminates delays. Create and implement a standardized approach for managing an invoice and paying your bills. Store invoices and bills in a centralized database (preferably a cloud-based system) that employees responsible for payables can easily access them. Create an aging report and organize stored data from the closest due dates so that you can pay them on time and avoid incurring penalties. An aging report also informs you about overdue payments.
Follow a Budget
Set money aside for payments when you create a budget for your business. This allows you to manage your cash flow so that you always have enough resources to pay dues on time. Accounts payables have a definite amount and due date, this enables you to time your expenses and project an amount you need to set aside. Including your dues into your budget allows you to avoid penalties you might incur because of late payment.
Create a Data Archive
Create an archive for all the receipts, invoices, notices, purchase orders, and other documents. This allows you to monitor all your dues and pay them on time. Doing so also enables you to manage your budget. Since you have a record of all your payables, you’ll know the amount of cash that goes in and out of your business. You can allocate resources effectively and manage your cash reserves.
Set up a Cash Reserve
You’ll never know when you’ll have poor cash flow that negatively affects your business’ capacity to pay dues. This is when a cash reserve comes in handy. This reserve provides you with extra resources to fulfill your company’s obligations to its vendors and suppliers. Only use this fund when it’s necessary. Replenish the amount you consumed whenever your cash flow stabilizes again.
Negotiate Your Payment Terms
Negotiate payment terms with suppliers and vendors to improve your accounts payable processes. Try getting a longer payment schedule to maintain your cash flow at the levels you want. Ask for discounts whenever you buy goods in bulk or use complementary services that your business partners offer. If you think you’re unable to pay your dues on time, negotiate new payment terms with your partners. You might have to pay interest or penalties spread throughout a timeline all sides agree on.
Pay your accounts payables on time with the practices mentioned above. Doing so allows you to maintain good business relationships with your suppliers and vendors. You’ll also avoid penalties and maintain positive cash flow. If you need assistance with updating your accounting books, we at Robookkeeper can provide you with the expertise you need. We offer bookkeeping services for small business owners at a competitive price.