Accounts Payable and Receivable Management

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.

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.

Get Organized

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.

Regular Checkups

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.

Regular Checkups

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.