MANAGING PAYMENTS DURING A CRISIS CAN BE TRICKY, BUT YOU CAN TAKE STEPS TO MAKE IT EASIER
Small business owners tend to be passionate about what they do, but that passion doesn’t necessarily carry over to managing ledger sheets. For those who aren’t natural number crunchers, bookkeeping can feel like a chore—particularly when it comes to dealing with money you owe other businesses. Add an economic crisis to the mix, like the one ushered in by the COVID pandemic, and dealing with payments may be the last thing you want to do.
Fortunately, you can take action to make managing accounts payable easier. Here are a few key steps you can take to streamline your accounts payable process.
1. Review your vendors’ payment schedules
When you begin working with a vendor, make sure you understand when and how they expect to be paid. Knowing this information is key to staying in good standing with the companies you rely on.
But you might also have some wiggle room. If you work with a vendor regularly, they may be willing to extend you a line of credit in difficult times or offer a discount for early payment. Don’t be afraid to reach out and ask for terms that would make life easier for you. If you’ve established a relationship with a vendor over time, there’s a good chance they won’t want to lose your business.
2. Prioritize and schedule payments
Everyone wants to get paid in a timely manner—from your employees to your vendors. To help make sure that happens, create a system for prioritizing and scheduling payments, then share it with your staff and vendors. This approach limits the number of check runs you do each month and helps avoid confusion or frustration for the people and organizations that are waiting for your payment. Creating an accounts payable spreadsheet, a listing of all your business purchase and vendors, and due dates, can help keep your payables process organized.
It can also prevent you from overdrawing your account with unscheduled payments that you don’t have the cash reserves to cover. In the event that you don’t have enough money coming in to cover all of your costs, you’ll have to make some difficult choices about whom to pay first. As a general rule, start with any taxes owed to the IRS (like payroll taxes), then move to necessities like payroll and utility bills.
3. Review invoices for accuracy
Always review a vendor’s invoice for legitimacy and accuracy before you issue a payment. Invoices should accurately reflect the goods or services provided, and the agreed upon price.
While you should expect the majority of invoices to be accurate, mistakes do happen. If you notice that a vendor’s invoices are consistently inaccurate, make sure to call your contact there to discuss the issue. If inaccuracy remains a problem, it may be time to look for another vendor.
4. Centralize payments
When it comes to personal finances, many people spend from multiple accounts, including checking accounts and multiple credit cards. But for your business, centralizing payments from one account offers a powerful way to keep an eye on the bottom line. Business checking accounts and credit cards are tailor-made for business owners, and generally come with online tools that can help you track your expenses.
5. Utilize technology to help streamline workflow
Accounts payable automation software can help make invoice processing and operations more efficient. These automated tools can also help tighten up accounts receivable and provide clearer insights into overall cash flow. There are multiple tools available today to help small businesses automate their accounts payable and accounts receivable process. Do your research by speaking with your peers and scheduling demos from the different providers to find a solution that works best for you and your business.
6. Maintain good relationships with vendors
Maintaining positive relationships with vendors is crucial to keeping your business running smoothly. When a vendor knows you’re a reliable customer who always pays on time, they’re more likely to go out of their way for you, or to prioritize your order in the midst of a busy schedule. Keep those relationships strong by paying on schedule whenever possible, and maintaining clear and open lines of communication.
Creating streamlined processes for managing your accounts payable takes a little time and effort. However, laying that groundwork will ultimately make your bookkeeping simpler, so that you can easily keep track of your cash flow and make adjustments if a struggling economy hurts your business. If you can stick to the systems and schedules you create—in good and bad economic times alike—you’ll spend less time balancing your books and more time focused on running the business you love