Writen by Jennifer A. Thieme
New small businesses and entrepreneurs quickly discover that the accounts payable process can turn into a monster. If it isn’t handled properly, unpaid bills pile up and get paid late, making vendors angry and possibly damaging the business’ credit rating.
Once a consistent procedure is developed, the accounts payable process can go smoothly. If you are in business by yourself and cannot afford to hire outside help, here are ten tips to help establish a consistent accounts payable process:
1. Purchase accounting software with an accounts payable module. In today’s business and computer world, some may wonder why this even needs to be a suggestion in a list such as this. Surprisingly, Internet research indicates that up to one-half of micro businesses (defined as under ten employees) do not use accounting software, instead using spreadsheets or even paper ledgers.
The advantages of using accounting software with an accounts payable module are tremendous and far outweigh the cost and learning curve. When used correctly and consistently, the software will serve several important functions: a reminder as to when bills are due; a generator of payments; and a recorder of payments into the checking register. The time savings alone over doing these functions manually warrant the purchase of accounting software.
2. Utilize the vendor’s auto-debit or auto-charge feature, if available. Utility companies, and other types of companies who have recurring payments, often offer auto-debit or auto-charge services. When used, the amount due is automatically deducted from the business checking account, or charged to the business credit card, on the date shown on the invoice. Often, the paper invoice is still mailed, but sometimes the vendor insists on emailing invoices when this service is activated. Either way, the invoice is available for viewing before the amount is deducted or charged. When used in conjunction with accounting software, the amount can be post-dated into the checking register or credit card register. If the company has a good and consistent cash flow, this procedure saves time and money by avoiding the bill payment process altogether.
3. Utilize the software’s internal “bill pay” feature, if available. QuickBooks, for example, offers a “Bill Pay” feature that is very inexpensive and easy to use. Once established, bills are paid electronically according to the software user’s authorization. The bill payment service takes the authorized amount from the designated bank account, then either issues a paper check to the vendor, or electronically transfers the money to the vendor’s account. The low monthly fee is not much more than the cost of postage and paper check printing.
4. Enter unpaid bills in a timely manner. Do not delay entering unpaid bills into the accounting software. Waiting too long to enter them can result in late payments, finance charges, and possible damage to the business credit score.
5. Enter unpaid bills correctly. It is very important to examine the bill and enter the correct vendor name, bill due date, and invoice number. Entering an incorrect due date will result in a payment occurring sooner or later than necessary. After entering them, stamp them as “Entered” or “Posted” using a rubber stamp with red ink. Be sure to write on the bill the date they were entered.
6. Organize unpaid bills. If there are many bills, organize them in an alphabetical file system to make them easy to locate. However, a small amount of bills may be placed in a single file.
7. If cash is tight, determine your cash flow before paying bills. Simple cash flow reports are easy to generate in Excel. Start with the actual amount of cash available to pay bills. Include amounts in checking accounts, savings accounts, and lines of credit. Subtract bills that need to be paid immediately. If there is not a comfortable cushion of cash left over, reduce the the amount of bills to be paid.
8. If cash is tight, communicate with any vendors who must be paid late. No vendor appreciates being paid late, but they do appreciate open communication. If you must pay a vendor late, let them know, and let them know a specific date you plan to pay them. Then, make every effort to pay them by that date.
9. Pay bills on a consistent timetable. Establish a regular timetable to pay bills - weekly is a good and common choice.
10. After they are paid, stamp them correctly, then file them. Buy a rubber "Paid" stamp, and use it on each bill that has been paid. Write the check number (or payment method), date paid, and amount paid on the bill. File them according to how they appear on the tax return. In other words, file Utilities together, file Office Supplies together, file Travel and Entertainment together, etc. This makes them easy to locate in the event of an audit.
About the Author:
Do you have a specific accounting or QuickBooks problem? Would you like to see an article written about it? Jennifer A. Thieme invites you to contact her today with your accounting or QuickBooks article suggestions. Resolving accounting or QuickBooks issues is her specialty.
Contact her to receive free QuickBooks software trials, free initial consultations, and free payroll quotes.
She’s the owner of Solid Rock Accounting Services and has been in the bookkeeping, income tax, and payroll business for nine years. She’s a Certified QuickBooks Pro Advisor, and a Registered Tax Preparer. Her clients receive QuickBooks training, general bookkeeping, income tax, and/or payroll services.
Visit http://www.jenniferthieme.com today for contact information.
