Accounts Payable
Accounts payable is money owed by a company to its suppliers and shows up as a liability on the company’s balance sheet. An accounts payable is recorded in the Account Payable sub-ledger of the General Ledger when an invoice is approved for payment. Suppliers generally offer various payment terms for an invoice. Payment terms may include the offer of a cash discount for paying an invoice within a defined number of days. Management of accounts payable and payment of invoices in a timely fashion can save a company significantly sums of money. Here are 16 tips to help a company manage its accounts payable.
- Try to negotiate longer payment terms for your Accounts Payable (e.g. increase a 30-day window to 60 days)
- Bill customers more quickly (just a couple of days help) so you can speed up the collection process which improves your cash position significantly.
- Schedule accounts payable on a weekly basis to avoid late charges or double billing.
- Monitor bank accounts closely to take advantage of higher yields on any excess funds in checking accounts.
- Try to reduce unnecessary overhead and monthly expenses.
- Sell unnecessary or unproductive assets that are just taking up space. If it doesn’t contribute to cash flow get rid of it.
- Prepare cash flow analyses that show potential cash shortfalls.
- Monitor Accounts Receivable, and charge interest and late fees on past-due balances.
- Use as much vendor financing and trade credit as possible since this typically does not carry interest charges.
- Provide discounts to customers who pay early and give different terms to different customers based on their ability to pay on time.
- Consider renting rather than buying certain assets. This is oft times better for the balance sheet.
- Make sure invoices are sent out correctly. This avoids delays because of customer questions about the correctness of the invoice.
- Repackage some short term debt into long term debt to help with the cash flow.
- Increasing a line of credit with the bank can help the cash position.
- Convert payroll to monthly or bi-monthly to allow funds to remain in the business longer.
- Monitor the money taken out of the business for activities that are not business related.