As a small business owner, you not only have to worry about the invoices you send out to clients, but also those that you receive from your suppliers. These invoices are just as important, and having a consistent and organized system for your accounts payable is crucial.
Accounts payable represents money that is going out of your business. Evidently, it is very important to understand exactly where that money is going, and to pay invoices on time in order to maintain relationships with your suppliers.
Accounts payable management is also an important element of your business’ overall financial reporting. Keeping track of your expenses will help you to make the right financial decisions for your business and plays an important role in both monthly and annual reporting.
H2 What Are Accounts Payable?
Accounts payable is the opposite of accounts receivable.
Rather than representing money owed to your business, accounts payable represents the money that your business owes to its suppliers. On your business’ balance sheet, the total of your accounts payable is a part of its liabilities.
H2 Why Are Accounts Payable Important?
Accounts payable are an important element of small business accounting and of your business overall.
The time invested in managing accounts payable can be significant, so it’s essential to streamline your processes. In fact, by using automation, the cost of processing invoices can be up to 20 times less expensive.
In order to keep your business running, accounts payable needs to be properly managed and monitored. If you don’t have a clear understanding of what your small business owes, it is impossible to get a true sense of its financial situation. Making financial decisions without being equipped with the right data can end up being disastrous in the long run.
Automating your accounts payable is the best way to keep it efficient and organized. By setting up simple automations like automatic payments or alerts, you can cut down on the amount of time spent manually checking and paying invoices.
H2 How to Pay Your Invoices
When you first receive an invoice, there are a few steps that you should take right from the get-go.
First, do a full review of the invoice. Check 3 key elements: the due date, the details of what was provided (what you’re paying for), and the amount owed. Catching mistakes right off the bat will help you to avoid delays and keep your accounts payable moving properly. Not to mention, a simple glance at the due date will ensure that you don’t accidentally make a late payment.
Every time you get an invoice from a supplier, it’s important to pick the right payment method. This may vary based on the supplier and the type of payment options that they can provide you. However, it’s a good idea to pick one payment method and stick to it. Common payment methods include:
- Mobile payments
- Online payments by credit or debit
You may even be able to set up automatic or recurring payments. When possible, this is a great choice to ensure that payments are made on time and you don’t have to spend time worrying about them.
H2 The Importance of Paying Your Invoices
It can be easy to overlook invoice payments and let them run late, with many small businesses putting their focus on accounts receivable. However, it’s just as important to pay your invoices as well.
First of all, paying your invoices on time is an important element in developing your relationships with suppliers. To create a growing and credible business, solid supplier relationships are key!
Consider your own clients: would you want to continue doing business with someone who is constantly late on their payments and necessitates several reminders? Put yourself in your suppliers’ shoes, and try to create a healthy business relationship.
The more confidence your suppliers have in you and your business, the more you will be able to negotiate deals in the future and continue working with them. Not to mention, it gives your business an overall sense of financial stability and trustworthiness that will benefit you both in the short term and in the long term.
Secondly, from a practical standpoint, paying your invoices promptly will allow you to avoid late fees or penalties from your suppliers. Interest charges and late fees can really add up, so it pays to have your invoicing system organized and on schedule in order to avoid them.
Here’s a quick recap of everything you’ve learned in this article:
- Accounts payable represents all the money that your business owes to its suppliers or vendors
- Accounts payable management is important because it allows you to fully grasp your business’ financial state and make the right decisions to move forward
- It’s important to pick the best payment method and stick with it when receiving an invoice from a supplier
- Paying your invoices properly and on time allows you to develop strong business relationships with your suppliers
With all of this in mind, be sure to set up a solid system for your accounts payable and automate it as much as possible. The more you’re on top of this aspect of your business, the better you will be able to move forward and continue growing.