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Improving your accounts payable processes will put more money in your bank account.
Some people don’t think such an outcome is possible, and that’s fine.
But by understanding more about this critical business process and making a few simple tweaks where needed, you will add a significant amount to your business’s bottom line.
If you care about maximizing the profitability of your business, read on because this page explains exactly why and what you can do today to reap more rewards from your hard work.
And make no mistake:
Improving the accounts payable process in your business will not only improve your cash flow. It will ensure the longevity of your business too.
Isn’t it nice to know a few simple tweaks can help your business stand the test of time?
Keep that promise in mind and let’s dive in.
1. A Surprising Definition of “Accounts Payable” That Most Business Owners Don’t Know
Most people don’t even know the correct definition of what “accounts payable” really means.
They think it is something that applies to large companies only. They think SME (small and medium-sized businesses) don’t need this nonsense.
Although understandable, thinking like this couldn’t lead you further astray from the truth. And it’s costing many small businesses owners a lot of profit and long term security.
Here’s what “Accounts Payable” actually means:
It is a system of recording supplier invoices to be paid for the products and services.
The key aspects recorded by a well-functioning Accounts Payable system are:
- Exact Payable Amount
- Time of Expected Payment (Due Date)
- Exact amount of GST
- Itemised information about products and services purchases
- Payment details and options
- Date of Issue (seems useless, but it actually helps to reduce your tax earlier, wink wink)
The truth is, that many small business perform all of these steps. But because they’re entering bills after they’ve paid them, they are doing worse than just wasting time. They’re also wasting money. Lots of money.
Remember: Knowledge is more than just power.
Knowledge is what makes tweaking for improvement possible.
Action Point 1: Ask a bookkeeping firm with a proven track record of managing Accounts Payables. They will give you an easy way to pay dozens of supplier invoices in one go.
2. A Shortcut To Better Decision Making
Confidence comes from experience and being informed.
And when you’re dealing with suppliers and other businesses that help you serve your customers, confidence is key.
After all, no one wants to deal with someone who does not have their act together. It shows in the tone of your voice, in your actions, in how you phrase your emails.
Accounts Payables is the ultimate weapon that gives you as a business owner a healthy boost of confidence. Because well organised and well informed business workflow gives a boost of confidence to a business owner. This effect takes place because insight helps you make better decisions.
And make no mistake:
When your decisions are guided by having correct processes in how you make payments in your business, you will feel very confident indeed.
For one thing, you’ll start making payments at the right time to the right people. As a result, you’ll stop paying only those people who yell the loudest. Having a proper understanding of who needs to be paid at the right times gives you 100% control over the exact flow of cash through your business.
It gets even better:
By running your Accounts Payable processes better, you gain full control over your business and the ability to solve the following problems:
- Cash Flow. The key element in business success and longevity is control over cash flow. When you have this control, you are in full control of running your payments based on well systemised data for ultimate decision making.
- Relationship Management. Maintaining good relationships with all suppliers without overpaying them or paying them too early, just because they yell the loudest. More about that later.
- Better Prices. By maintaining good relationships with your suppliers a lot of businesses enjoy great discounts and overall better pricing. Will receiving discounts for being a top customer help boost your bottom line? You bet!
- Transparency. The ability to view all invoices in one place helps you spot abnormalities. Say goodbye to slogging through piles of paperwork and dozens of emails. Everything you need is just a click away.
- Ability To Pay Later. Suppliers frequently make mistakes. Well kept account payables system will often give you better negotiation power when you need extra time to pay.
- Cash Flow Crunch. If you happened to find yourself backed into a corner, well kept accounts payables system will allow you to put a smooth and affordable repayment plan in place that will keep everyone happy.
The ripple effect that comes from gaining confidence when running your business cannot be underestimated.
Action Point 2: Filter out any bookkeeping service that collects documents before the decision to pay is made by management. This process should never be performed after the fact. Yet, the majority of accounting and bookkeeping services out there have this the wrong way around. Even if they try to convince you otherwise, be strong and request the proper services.
3. Enhanced Efficiency Gives You Power Over Your Competitors
Let’s face it:
Things can slip through the cracks from time to time. For this reason, it is always good to have a second layer of efficiency checks.
And while we’re facing the facts, let’s admit this too:
The best time to keep your suppliers accountable is before your pay them.
Decades of practice and experimental variation of account payable systems could not find a better motivational tool for efficiency and productivity than that.
Nothing makes suppliers of services or goods more efficient than the proximity of the pay day.
And by all means, there is no need to be mean and nasty.
Just pick a few items on the invoice and congratulate them on a job well done or on a particular product supply that you appreciate.
In my experience, contractors will go the extra mile in performing what should have been done in the first place when you offer a friendly review of the items on the invoice and complement them on a job well done.
Action Point 3: It is crucial for an Accounts Payable service to be proactive and engage your company resources as little as possible. Taking photos of the receipts and scanning them for your Accounts Payables should be a last resort. Your bookkeeper should have a means of extracting them automatically via email and be in contact with your suppliers on your behalf.
4. Get Credit From Your Suppliers
As you can see, running a proper Accounts Payable system allows you to be a good payer and boosts your credibility overall as a top-notch client. When you have your Accounts Payable system optimised, then it’s time to negotiate longer payment terms.
Why ask for a credit? Good question! Allow me to explain:
There’s an urban legend that Albert Einstein once said compound interest is the most powerful force in the universe.
The present value is always less to the future value because money has interest-earning potential or other opportunity to turn them around with a profit.
Whether or not Einstein really said this line, it is so powerful that it has become my personal financial motto. I strongly suggest you adopt it for yourself because value in the present moment always has huge potential when you let your money earn interest.
How does this principle apply to how you run your business?
Pay as late as you reasonably can. Think about it:
Every time money leaves your account, you are losing on potential interest you could be earning. But when you get credit, you can continue to earn interest on funds in your own account.
This point is important, however:
Don’t be mean about how you ask for a credit! Don’t lord your professionalism over your suppliers and business partners like a snob. Just negotiate longer payment terms with your suppliers with reference to your credibility and reliability as a client.
When you have your Accounts Payable process in proper order, you won’t have to brag anyway. You’ll have everything available for anyone to see in just a few clicks and it will all be in proper order.
The crazy thing is... when you negotiate longer credit terms, it will be mutually beneficial. In fact, it has been demonstrated that offering extended credit often encourages customers to speed up or increase the amount of their spending. (Trade Credit: Theories and Evidence, M. Petersen, 1997)
Action Point 4: Introduce a strict rule into your company’s process : No invoice, no payment. This policy is very reasonable. You should not provide any payments unless and until an invoice has been supplied.
5. How to End Overpayment Disasters Forever
Being professional in business in every aspect is must. And guess what, making overpayments make you look like an amateur.
The following fact about many businesses probably sounds crazy, but it is completely true:
Businesses without robust accounts payable systems make double payments on invoices on a regular basis.
Because overpayments create many negative effects on many fronts:
- They place unnecessary additional stress on your cash flow
- Careless purchases and reckless shopping sprees. You have money to burn when you overpay and have credit with someone which easily prompt you to make silly and careless purchase decisions.
- Reduced accountability by suppliers or contractors
- Introduces inefficiency and damages your bottom line. Boom! Less money in your pocket!
- Additional workload on admin and additional expenditure related to admin work hours when they could be helping with more profitable tasks
And this point is worth repeating:
Overpayments damage your reputation. Even just one overpayment can make you look like an amateur.
And since the memory of most business people is very long, negotiating the profitable business terms we’ve talked about in this page can become very difficult for you, if not impossible.
This will make it harder for you to increase your profit and you’ll continue struggling with establishing the long-term stability of your business.
Action Point 5: Activate the ability to perform batch ABA file payments via your internet banking. It will allow you to make payment to multiple suppliers in one go.
6. A Simple Path To Peace of Mind
There is nothing worse than not knowing and constantly guessing.
The negative effects of stress on our health and performance are well documented by doctors and scientists (The Theory and Research on Occupational Stress and Wellbeing, C. Cooper, 2013). They have not only short term but in some cases severe long-term implication.
Stop guessing. Stop stressing.
Even if you don’t have any cash flow management strategies developed in your head, yet. When you have an organised Accounts Payable system, your brain will develop efficient cash flow strategies for your business. Like magic.
When you know exactly, how much and why you are paying, your stress levels will automatically go down.
In sum: Take care you your mental and physical health by following organised Accounts Payables procedures.
Action Point 6: Allocate some time for yourself. When you have a professional bookkeeper on your team, every moment you spend getting your processes working correctly will reduce stress from your life.
7. Data Driven Business Growth and Longevity
We all have a lot of long-term commitments in our lives: paying for the house, putting kids through a good school and university, preparing for retirement and more.
And since cash flow mismanagement is one the biggest killers of businesses out there, it puts all of those dreams at risk.
Don’t be another statistic. Grow and manage your business sustainably.
Little wins here and there are good. But there is nothing better than a reliable income generating machine that works predictably because you have full visibility over how and when your accounts get paid..
And make no mistake:
Setting up a proper accounts payable system will create consistent results that will help establish your reputation. Not just as a competent business person, but someone capable of looking after your family, providing for yourself and for the sustainable future of your customers.
Action Point 7: Set a time on your calendar to get more acquainted with your data and business processes. You'll be glad you did when you see just how much clarity the process brings. Fall In Love With Data Driven Growth For Business Longevity.
At aVers, we combine the best of highly trained bookkeepers with 21st century technology to help you achieve lasting business stability and improved profitability thanks to our Cash-flow Guardian Method.
As a result, our clients enjoy all of the advantages we’ve discussed on this page because we at aVers:
- Establish a robust reliable data gathering system, engaging multiple levels of IT
- Tailor your system to deliver reliable Accounts Payables
- Provide you with 100% control of when, how much and why you are paying
- Boost your confidence because you are informed on a regular basis
- Reduce stress on your brain as our Cash Flow Guardian Method creates and perfects your very own cash flow management techniques
- Increase the longevity of your business.
If you are in business and want to create a reliable and sustainable long-term income and a robust reputation as a leader in your industry, we are here to help.
If you’d like to see how our accounts payable tweaks can help your business, give us a call on 1300 255 337, leave us a message below or just use the chat on the bottom right-hand side.