Small businesses must ensure that the accounts payable and receivable are well managed. The health of a business's finances relies heavily on accounts receivable and accounts payable. Knowing how these two accounting functions impact your cash flow and growth can mean the difference between another year of healthy profits and becoming just another statistic. However, managing them can be a bit of a juggling act. Below are a few ways to better manage your accounts payable and receivable. Dive deep into this article to learn more.
Reviewing Accounts Payable and Receivable
The first step to improving the state of your cash flow is to review all of your accounts, both receivable and payable. Have a system to deal with late payers so that you receive money owed on time. Then, ensure you haven't missed any significant expenses while calculating your payables. In most cases, long-term debts are not included in accounts payable, as they are considered liabilities.
Organize Them
Payables and receivables cannot be managed effectively without an organized system in place. Be clear and consistent in your billing process. Ensure everyone in your company follows the same procedures by documenting the process. Staying organized is crucial to properly managing accounts payable and receivable. This way, you will ensure that outgoing payments are made on time and that receivables are kept in check to maintain a smooth cash flow.
Establishing Credit Policies
Set clear credit policies to avoid extending too much credit to clients. This makes it easy for your organization members to decide on extending credits. Usually, regular customers with good credit ratings are given more significant payment flexibility than first-time customers. Payment terms are typically set at 15-30 days. Similarly, payables should be made to suppliers as soon as the shipped items arrive in good condition. You can also take advantage of discounts from suppliers for early payments if provided.
Use Automation
Save time and increase consistency in your accounting process by automating the steps and reducing manual work. Use automation software to create and manage invoices, create shipping orders, track financial statements, and manage documentation flow more efficiently. It is also another way to stay organized.
Set Reminders
Setting accounts payable and receivable reminders can be helpful if you aren’t using automated software. It will remind you when it is due to pay the outstanding amount. Regardless of whether they are automatic payments, it can still be helpful to set reminders for payables and receivables so you’re aware of when money is going in and out of your accounts. You can also use reminders for outstanding invoices in your receivables system to remind you to follow up on payments.
Ensuring Accuracy
Look for errors and ensure all the invoices, both receivables and payables, are accurate. This can help you reduce misrepresentation of the accounts.
Keeping track of accounts payable and receivable can be complicated, especially for a small business. But you are not alone in this. At Mountain Top Bookkeeping, we provide you with a range of virtual bookkeeping services, so you can free up time to focus on core business activities. Get in touch with us for customized bookkeeping services.