Accounts Payables are the amounts you owe to suppliers who have allowed you in most instances to receive goods with an agreement usually in agreed terms to pay them later. The later date can be 30 days after the invoice date or 30 days after the end of the month. Other suppliers may offer you cash incentives such as a discount for early payment. It is worthwhile were resources permit to take up discount offers as this results in you having lower cash outflow and therefore improving your cash flow.
The following are some ways you can effectively manage your accounts payable.
Get Payment Terms
Where your customers take longer to pay you should consider negotiating for longer credit terms such as 60, 90 or 120 days. This will better match your receipts with your payments and improve your overall cash flow. As outlined above where resources permit consider taking up early payment discount offers. This will result in you spending less and improving your cash flow.
Terms must be agreed to in a contract to avoid overdue payment charges or supply stoppages.
Reconcile supplier invoices before payment
Some business will lose a lot of money and time dealing with duplicated payments. This occurs when suppliers are paid twice for the same invoice. This often happens where there are weak internal controls. Where employees are allowed to pay on copy and unauthorized invoices this often results in payments being made twice. Where there are no monitored bank reconciliation or general ledger reconciliations this can also result in duplicate payments being made to suppliers. If a supplier sends you a duplicate invoice by mistake it will be easier for you to catch them out where you have strong internal controls. It is worthwhile to invest the time and effort needed to ensure that you have proper processes to avoid this from happening. Having a checklist that includes a reconciled and approved statement before payment can help save this from happening.
Confirm all payment details to avoid making the wrong payment particularly where you are making an overseas payment. This can become very costly for your business. Most international payments will need a specific account and routing details to ensure that these are correct before making the payment. Correcting wrong payment may lead to your business incurring extra bank charges to reroute the payment to the correct account. In most instances, the amount paid to the incorrect account is returned to you less bank charges while you have to redo the payment at full cost. You may be able to recoup the amount from the supplier you are paying if the error was not yours in the case where you were given wrong account details.
Forward Exchange Hedging Contracts
If you are making foreign payment consider hedging to protect your business from fluctuating foreign currency rates
Have a standard procurement business process so that you purchase from quality suppliers at the most favorable costs. Not having any oversight over this process can lead you to incur larger costs in product returns and additional freight charges which results in a negative impact on your cash flow.
Putting in place the above-mentioned processes can help manage what is often a daunting task. If you need help with setting up your accounts processes and procedures book your Discovery call here today or email us at firstname.lastname@example.org.