Every business owner has to practice good credit management. After all, you are in business to make money. However, smart accounts payable management is just as important. When done properly, it can save you a lot of time and money.
What is the difference between accounts payable and receivable?
An account payable is money you owe a vendor: a person, business, or organisation that you still have to pay. In your accounts, creditors appear on the balance sheet under liabilities.
A debtor is a customer who owes you money. These are accounts receivable and are listed on the assets side of the balance sheet.
6 tips for smart accounts payable management
1. Make clear arrangements with suppliers
As a buyer, you will usually have agreements with various suppliers. Ensure that your agreements about quality, pricing, delivery times, and payment terms are clear. Keep notes of what has been agreed in your accounts payable records. Also try to renegotiate the purchasing conditions of ongoing contracts. While you cannot force any vendor to make changes, you can always ask or negotiate. Finally, pay attention to expiring agreements. That way you can be sure to start negotiations with new or current vendors in time.
2. Check invoices for compliance
See if incoming invoices meet the legal invoice requirements. Invoices are required by law to contain information such as the VAT number and the date, for example.
3. Keep records and check them
Give each invoice you enter into your system a number, such as the invoice number or your own unique invoice number. Keep all your invoices in the same. This makes it easier to find paperwork when you need it. Whenever you receive an invoice, verify whether all the details are correct. Compare quantities and prices with the quote or order, and check that the totals match. If you find that anything is incorrect, return the invoice to the sender and explain why. Keep a copy of the rejected invoice, your written response, and any other correspondence.
Always try to pay approved invoices within the statutory payment term. If you do not have enough cash in hand to pay all your accounts payable before the payment deadlines pass, contact your suppliers. Ask if you can come up with a payment plan, such as paying in instalments.
5. Leverage your supplier credit
Some suppliers offer credit. This means they will deliver goods or services and allow you to pay later. From the time the goods or services are delivered until the moment you pay, you will have credit. You can use the unpaid amount for other expenses. Please note: always pay within the agreed and statutory payment term. This prevents extra costs and future supply problems.
6. Get smart about inventory management
Tailor your inventory to market needs. With active inventory management, you can create a lot of financial space. The shorter you keep products in stock, the sooner you will be paid for them. It is easier to keep track of the bigger picture with a digital inventory system.
Drawing up a payment plan
Sometimes you are temporarily short of cash and cannot pay an invoice. For example, because a customer does not pay you or pays you late. If you have a good relationship with your supplier, you may be able to draw up a payment plan. Contact them as soon as possible and make clear agreements. Confirm everything in writing.
Improve your accounts receivable management
If you have more outstanding invoices than payments coming in, it is time to tighten your accounts receivable management. Good accounts receivable management will save you money. Make sure to keep a close eye on your income and expenses, and try to align the various cash flows.
Keeping records: should you do it yourself or outsource?
Keeping business records is required by law. That is another reason why it is important to get your accounts payable and receivable management in order. As an added benefit, it allows you to track if your customers are paying on time. At the same time, you should always pay incoming invoices on time. You do not want to be regarded as a bad customer. You can keep your financial records yourself or outsource this job to an accountant or accounting firm. Accounting software makes processing debtor and creditor records faster and easier. This is useful if you do not want to build everything yourself in Excel.
Advantages of outsourcing your record-keeping duties:
- Saving time
- Focus on running your business instead of administration.
- With a bookkeeper or accountant, you have an expert for administration, answering questions and, for example, to find out about tax benefits
- In the long run, this can save you money
Video – Boosting your financial insights: 6 tips
This KVK video shares 6 tips to boost your financial insights and can be viewed with English subtitles.