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Accounts Payable...Accurate! On-Time! And A Possible Source of Huge Savings!

By Edited Nov 10, 2015 0 0

Proper Management of Just One Element of Your Business Can Save Your Business Hundreds of Dollars!

That Element is Accounts Payable.

Pile of Hundred Dollar Bills
How do I know?  I've owned and operated 3 businesses.  One of which was bookkeeping.  I have close to 10 years expereince in this area.  

The key to keeping your Accounts Payable (AP) under control in large part lies in your cash flow.  AND not coincidentally, Accounts Payable is one of the keys to controlling your cashflow.  If you have positive cash flow, only one thing to remember about AP - pay the bills in the accurate amounts and ON TIME!

ON TIME means before they're due, in time to take advantage of discounts (if there are any), but no sooner than necessary so you hold on to your cash as long as possible for improved cashflow.

But What is Accounts Payable Really?  

Accounts Payable is an umbrella term for invoices based on goods or services bought by your business on credit of less than one year.  It is also the name of the area, office or department of your business that processes these invoices.  It is also the name of the general ledger account into which you put your invoices, pay them and track them when you set up a recordkeeping or bookeeping system.  

Most often, Accounts Payable is credit for 30, 60 or 90 days.  AP, as I call it, is one of the places your business' money flows out.  This is why it obviously linked to your cash flow.

Simple Manual System for Improving Your Accounts Payable and Saving Your Business Money.  

1.  Set up two folders. One will read “Accounts Payable” On-going.  One will read “Cash Disbursements – (Month Year)”.  

2.  ALWAYS pay based on invoices, NOT based on statements. 

3.  When an invoice comes in READ the terms.  Decide if the terms will work for you.  Even if they will, think about terms that might better serve your needs, but at the same time also equally serve the vendor’s needs.  Maybe they want payment in 30 days.  Maybe you want and need to make payment in 60 days or 90 days for better cashflow.  Maybe you would like to try to negotiate a discount if paid sooner than 30 days.  Vendors always like to be sure they are going to get their money.  Basically, I’m saying that negotiating is OK.  Give it a try. Again, this isn’t an arbitrary decision.  It is based on a study of your cashflow, IF you have been in business long enough to have a historical cashflow comparison of at least a year.  The more history the better as you will have had a chance to settle into an established pattern of income, and a credit history.

4.  Put dividers in your Accounts Payable folder for each week in the month.  Label the dividers wk 1, wk 2, etc. 

5.  Set your bills up to be paid manually online through your bank account. 

6.  Before paying the invoice, if you are not the person who placed the order, then you must obtain a signoff from that person showing simply their initials and the phrase “ok to pay”.  You don't want to pay for something the company may never have received.

7.  Set up reminders in your emails to pay your bills weekly if you are afraid you will forget. 

8.  On bill paying day, remove that week’s invoices, go into your bank account, pay the bills, mark your hard copies “pd, (date), (check number).  File the hard copies in the “Cash Disbursement – Month Year” folder.

9.  Make sure you follow up on invoice discrepancies.  If you are a business that takes deliveries, make sure you check your delivery ticket against your order.  Then check your delivery ticket against your invoice.  If you find discrepancies, pay the full invoice.  It isn’t a good idea to short invoices.  Contact the vendor and negotiate any disputed items, amounts, etc.  If the dispute goes in your favor, apply any credits to the next invoice.  Make a copy of the credit memo and attach one copy to the invoice in dispute. Attach the second copy to the invoice where credit is being applied. Make sure to list both the invoice number and credit memo number as well as your account number on the payment.

On time payment and early payment with discounts can save your business hundreds, possibly thousands of dollars over time.  Negotiating terms with your vendors willl help you more evenly spread your cash-outs against your cash-ins for better overall cashflow, and a better managed business.

Other Things to Consider About Your Accounts Payables.

Don't just blanketly pay those invoices.  For instance if you ordered materials and received an invoice, make sure that someone checked in those materials.  Make sure they used a delievery ticket and that they get that delivery ticket to you.  You will also need a copy of the order form or purchase order.  You now need to compare the order form to the delivery ticket.  Make note of any changes from one to the other.  Was something ordered and not received?  

Now, check both the order form/purchase order against AND the delivery ticket against the invoice.  Does the invoice accurately reflect the original order and any changes shown on the delivery ticket?  Compare the total and individual amounts of the original order form/purchase order against the amount you are being charged on the invoice.  Are they the same?  Why or Why not?  Maybe your sales person gave you a special deal and forgot to inform his accounting department.  Do you need to call the company to talk with them about possible adjustments, missing items, back orders, broken items, item refusals, wrong items?  If there is a credit coming to you, you MUST have the vendor send you a credit memo.  You will need this as proof of the credit, otherwise it will look like you just made an arbitrary decision to shortpay a bill.

Your Accounts Payables could be a source of a major drain on your cash.  Or, it could be a source of savings!  Establish your Accounts Payables in a way in which it is best workable for you.  You can amend your system as your company grows.  But always take the time to closely review your invoices.  Mistakes can happen, and often do.  You want to make sure your business pays accurate amouns, saves when and where possible and builds a reputation for ON TIME payment! 



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