We have all heard the saying… “It’s better to prevent a fire, than to try and put it out.” When it comes to accounts payable, it is always best to be proactive and organized to avoid being reactive.
That said, nobody likes to pay bills. We all like to cash checks, but paying bills is not that much fun. However, if you are running a small business, keeping a handle on your accounts payable is imperative to keep your cash flow healthy.
1. Organize Your Invoices in Order of Due Date
When it comes to keeping your finances running smoothly, it is not a good idea to pay your bills as they come in. Rather, pay your bills when they are due. This will help your cash flow. Also make sure that not only do you pay your bills when they are due but prioritize them due to the type of bill they are. High interest credits and loans should be paid first, and then you work your way down.
Most accounting software, such as QuickBooks will allow you to enter your invoices in and will alert you when you need to pay them.
2. Watch that Data!
Do not put off until the end of the month to review your accounts payable. It is easy to just bury your head in the sand, and think to yourself, “I’ll deal with it later.” That is not a good practice. Review your financials regularly, preferably at least once a week. This will help you keep tabs on cash and be strategic in planning.
Again, good quality accounting software such as Quickbooks will help you keep a handle on your accounts payable much easier by allowing you to access advanced reporting with a few keystrokes. This will help to alert you to issues before they become ISSUES including fraud, compliance risk, and or any other blockage that could jam up the Accounts payable process.
3. Maintain Separation of Duties
Unfortunately, no matter how honorable an employee’s intentions are, if the cookie jar is easy to dip into, the temptation might be too great. Make sure you have a good Separation of Duties policy in place for your accounts payable department. Do not have one person handling billing, payments, and check approval. It takes approximately 18 months before fraud is detected, and the median loss is $150,000. Keep duties separate and temptation will be diminished.
And try to avoid setting up a situation where you have a single point of failure. Provide good customer service and make sure your employees are cross-trained and can pick up the slack whenever needed. Your vendors might not understand if your accounts payable department is short-staffed from time to time due to employee turnover, absence, or sickness.
4. Watch for Duplicates, Disputes and Resolutions
If you automate your accounts payable process it will significantly reduce the unfortunate occurrence of making duplicate payments and avoiding disputes. Bill.com is one tool that can help you do this. Resolving a duplicate payment is a nightmare and it will play havoc with your cash flow. In a best-case scenario, the vendor will send the extra payment back, although that could take weeks. The worst-case scenario is that neither you nor the vendor catches the duplicate resulting in a financial loss for you.
Keeping track of disputes and resolutions is very important to maintain your cash flow. It is easy to just sign a check or send an online payment, but if you were overcharged, or if a discount was not applied, you basically are throwing money away if it is not caught.
Make sure you follow up on uncashed checks. Checks can get lost in the mail, vendors can forget they have the checks, or they can simply lose them. Set up a process where you can follow up on uncashed checks. This can easily be implemented when you do your monthly bank reconciliation.
5. Reconcile Your Accounts Payable Daily
That may seem extreme, but this goes back to keeping an eye on your financials. Reconciling your accounts daily will help you identify discrepancies before they become huge problems. It is much easier to fix an error when it happens as opposed to chasing it down three weeks later.
If you are interested in discussing these best practices in more detail, please contact Accounovation for more information. We are a technology-driven, process-focused, and people-powered accounting firm specializing in outsourced accounting.