Payables Management: Boost Cash Flow!

Happy Sunday and Happy St Patrick’s Day!

We are into another week and closing in on the end of Q1 quickly. I hope each and every one of you are focused and meeting your goals! This week, I was asked to cover some accounts payable details and why it matters to monitor expenses. So, let’s dive in to this week’s edition of The Bottom Line!

The management of payables emerges as a critical task that requires meticulous attention to detail and a strategic approach. For small businesses, effective payables management is not just about making timely payments; it's about safeguarding cash flow, maintaining vendor relationships, and ensuring compliance with regulatory requirements.

Let's delve deeper into the key strategies and best practices that can help small businesses master payables management and unlock financial efficiency.

Implementing the Three-Way Match System

Small businesses must adopt a rigorous three-way match system before authorizing any payments. This entails cross-referencing the purchase order, invoice, and goods receipt to ensure accuracy and legitimacy. By implementing this meticulous validation process, businesses mitigate the risk of errors, discrepancies, and potential fraud, fostering trust and integrity in their financial operations.

If you stay in business long enough you will run into situations where fraudulent attempts are made to get your AP team to send an ACH/Wire or check that isn’t for services you should be paying for. This is where the 3-way match can help! If your AP team receives an invoice via mail or email, make sure it’s always verified! If they receive a request from someone in leadership to pay a bill, check the validity of that request.

Expertise of the AP Team

The Accounts Payable (AP) team serves as the frontline guardians of cash flow, diligently overseeing the payment process from initiation to execution. Their meticulous attention to detail and proactive approach to invoice processing ensure timely payments while maximizing discounts and minimizing late fees. By harnessing the expertise of the AP team, businesses optimize cash flow management and maintain healthy vendor relationships.

They can also help you negotiate better terms with your vendors where possible since they are always in contact with them. Keep in mind that we want to hold onto our cash for as long as possible.

In this video, we talk about more than payables, but there is some great information here for you and your team! Go check this out and subscribe to our YouTube channel, it’s FREE!

Collecting Essential Information for Vendor Setup and Tax Reporting

Setting up vendors in your system requires gathering essential information such as vendor name, address, contact details, and payment terms. Additionally, collecting tax identification numbers (TINs) and vendor banking information ensures compliance with tax reporting requirements and facilitates seamless payment processing. While I steer away from any tax work, I have an amazing reference or two that I can provide. If you have questions and need help with your tax planning let me know!

Effective payables management extends beyond timely payments to regulatory compliance, and meticulous record-keeping enables businesses to fulfill their tax reporting obligations seamlessly.

Proactive Management of the Accounts Payable Aging

Regular monitoring of the AP aging report provides valuable insights into cash flow health and vendor payment patterns. By identifying overdue invoices and prioritizing payments strategically, businesses mitigate the risk of cash flow disruptions and optimize working capital management.

Open communication with vendors is paramount to effective payables management. Proactively addressing payment delays, negotiating favorable terms, and fostering collaborative relationships contribute to a harmonious vendor ecosystem and ensure the smooth flow of goods and services.

As someone who has specialized in the receivables side of things, if you work in payables you should be expecting your vendor’s AR team to be discussing the account with you. So be prepared for those conversations and have status information for any open invoice you owe a vendor.

If you have any specific questions on how to improve your payables position, better manage cash flow when it comes to AP please give me a call!

Make it a great week!!!

—Brad

Work With Guernsey Consulting LLC

Guernsey Consulting LLC stands ready to be your trusted partner when it comes to managing your payables process. For expert assistance or to explore our comprehensive services, reach out to me at [email protected] or visit www.guernseyconsulting.com.