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If you’re not in control of your payables, you’re not in control of your business. You always need to understand what you owe, and your cash position. Not knowing the financial position of your small business is a massive risk.
Too many small business owners' finances are out of control. They don’t understand how much they owe, how much they have in their accounts to settle this debt, and when they can do it. They pay bills when they can. Operating reactively and paying bills once their suppliers have reminded them multiple times. They risk relationships with creditors, subcontractors, and sometimes employees. All because they settle payables on time.
While this problem typically stems from a lack of profitability, there are other causes. Financial discipline is one. However, the biggest problem with not being able to effectively manage accounts payables is not having a defined system. A system that states how you record your expenses. One that defines how you manage your cash flow. And most importantly when you settle your accounts payables.
Without a defined system around accounts payables, you can’t efficiently manage your cash. Without managing your cash, you can almost guarantee you’ll pick up some fines, extra interest charges, or even bankruptcy.
Let’s avoid that at all costs.
How to manage accounts payable effectively
Start by regularly recording your expenses and receipts. A financial management system helps, and a bookkeeper adds an extra layer of support, but at the end of the day, it’s up to you. Knowing how to manage accounts payable effectively will help you create a process around cash flow management.
Once you have a process around cash flow management, you’ll have an understanding of how frequently you need to settle your debt. This will allow you to set up a system for how often you settle debt.
We suggest starting with bi-weekly. Most suppliers and creditors have net 30-day terms. Employees and subcontractors will expect bi-weekly payments. So, setting up a biweekly payment schedule will cover all the bases.
Setting up this system is easy. Set aside 60 minutes every two weeks — do it on Friday afternoons with a beverage of choice — where you do the following;
- Document any outstanding receipts
- Review all outstanding debt
- Review your cash position
- Prioritize debt
- Make payments
- Review your cash position
Make sure you’re documenting what you’ve paid. Send a short email letting people know you’ve paid them. Inform those who you can’t pay why you can’t pay, and give them an estimated date of when you can. They’ll appreciate you for this. Put this time in your calendar and repeat it every two weeks. Eventually, it will take less than 30 minutes, and you’ll know your cash flow position off the top of your head.
Our Process for How to Manage Accounts Payables Effectively supports small businesses in building a healthy cash position. It helps them confidently manage their debt. If you need a second set of eyes on your outstanding debt, get in touch.
Some questions to help you manage your payables
- How do you capture your receipts for expenses incurred?
- How do you ensure your billable expenses are being logged to a specific job?
- Are you billing customers for extras?
- How do you pay vendors?
