BEST PRACTICES
MAKE YOUR ACCOUNTS PAYABLES WORK FOR YOU
Payables are all the ways your business spends cash, from
buying inventory and office equipment to paying employees and
taxes. How do you keep your costs down in light of all the different
As Bank of America’s Small Business
Banker for the Treasure Coast, Christina
Hunter is committed to understanding
what makes businesses unique. By
focusing on a company’s priorities, she
provides financial solutions that help
grow, manage and protect their business.
Christina’s involvement in our community
gives her a firm understanding of the
local market. As a long-time resident, she
is involved with many professional and
charitable organizations and is on the
board of directors at House of Hope.
BEST PRACTICES/BANKING
CHRISTINA HUNTER
TCBusiness.com 37
ways cash can leave your business?
An important goal should be to make sure cash inflow exceeds
cash outflow. Start with planning your payables so they’re predictable
— and maximize them to their greatest potential.
A PLAN FOR MANAGING PAYABLES
Get an overall snapshot of your outgoing cash flow. Here are a
few practical things you can consider:
• Log the date and source of all payments to find out what you’re
spending and how often
• Note any patterns, seasonal trends or other contributing factors
that might be affecting your cash flow
• Track your outgoing cash flow in a report
• Review expenses and suppliers regularly to lower costs
• Set expense budgets for your employees
• Use a credit card for expenses to slow the payment process
• Consider payment terms as well as price when choosing suppliers
FIND THE RIGHT VENDORS
A good working relationship with your vendors can help with
the management of your cash flow.
• Establish good communication. Let your suppliers know your
general financial situation and product and service needs.
• Consider early payments. Find out if potential vendors offer discounts
for paying early. It could positively affect your bottom line.
• See if they’ll work with you. Extending payment due dates can
help you with your cash flow.
• Focus on more than the price. The lowest price may not always
improve your cash flow, but more flexible payment terms might.
SET UP VENDOR PAYMENT SCHEDULES
Optimize your payment schedule. You’ll reap the benefits of
having more money in your account, earning more interest and
being better positioned to make timely payments that will keep
your vendors happy. Here are a few tips you can implement:
• Make sure receipts and invoices are in one central place. A
ledger sheet can help you assess your situation at a glance.
• Strategize your payments. Take full advantage of creditor payment
terms by determining when payment is due (30, 60 or 90
days). Electronic payment methods are perfect for fulfilling this
obligation. Timing your payments this way keeps cash in your business
longer and enhances overall cash flow. You’ll have more cash
on hand to meet other obligations such as rent, utilities and payroll.
• Keep cash flow budgets and forecasts current. You will always
know where you stand, which will help you make informed decisions
about timing your payments throughout the month.
RECONCILE DAILY
Accuracy is key when it comes to cash outflow, so it’s a good
practice to try and update your accounts every day. An automated
account payables process or software can be useful in this area.
DOUBLE-CHECK YOUR INVOICES
Make sure you match invoices against your purchase requests
or purchase orders before you process payments. Also, keep a
running list of invoice disputes and resolutions. Take notice of any
patterns you may notice from invoice to invoice. If the same vendor
is involved, you can work together to quickly resolve the issue.
BE DILIGENT ABOUT ACCOUNT RECEIVABLES
It’s a simple fact: You need cash to make your vendor payments.
Staying on top of your potential income will better equip
you to meet your own obligations.
GET A W-9
Before the first invoice is paid, every vendor should supply you
with a W-9 form. The IRS requires it, mainly to establish a paper
trail, and it gives you all the contact information you need to pay
them. This may also protect you from illegitimate vendor expenses.
CONTROL WHO AUTHORIZES PURCHASES
Many small businesses do not have a formal purchase order
system. That’s okay as long as you have a clearly defined procedure
for purchases so that all employees know the authorization
process.
• Choose the right employees for specific account payables
duties. Have a system for managing which vendors are approved
and where your invoices and checks are going.
• Protect your business against fraud. Never have one person handle
it all. Separate the responsibilities for preparing invoices, writing
checks and processing payments among multiple employees.
• Cross-train and rotate employees. This gives multiple employees
experience in account payables and the ability to cover
absences. It may also discourage theft.
MAKE THE MOST OF COMMISSIONS AND BONUSES
Timing is key to making the most of your cash. A good practice
may be to defer the payment of sales commissions until you’ve
received the cash from the customer. This protects you from
paying cash out before it comes in. Some companies set policies,
such as paying commissions on the tenth of the month provided
the customer has paid. The same logic applies to bonuses: It is
ideal to pay bonuses during the time of year when cash balances
are high.
PAYABLES MANAGEMENT SOLUTIONS: AN OVERVIEW
Speed up your outgoing cash flow. Plan and forecast your payments.
Streamline your payroll process. There are many new and >>
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