How to Manage Accounts Receivables and Payables
As a business owner, you know that managing your accounts payable (AP) and accounts receivable (AR) are essential to keeping your business running smoothly. If you want to stay on top of your finances, it’s necessary to understand how these two systems work and how to manage them effectively. Read on for tips to manage your AP and AR better.
First, let’s go over the difference between accounts payable and accounts receivable. Accounts payable is the money you owe to your suppliers, contractors, and any invoices you pay from your business. Accounts receivable is the money that is owed to your business. Both are essential parts of your cash flow, and effective management can significantly impact your bottom line.
How to Manage Accounts Receivables and Payables Effectively:
- Start by reviewing your finances. Make a list of your regular payments and your expected income. Don’t forget to write down the smaller purchases, like subscriptions, coffee runs, etc. Make a note of any loans and their interest rates for easy access.
- Make sure you have a sound accounting system in place. A system will help you track who owes you what and when payments are due. You might be okay with managing this on your own, but you might want to consider payment management software like QuickBooks or Quicken to make this process more efficient and accurate.
- Whether you use payment management software or not, consider creating a payment approval procedure. This procedure will outline who at your business is allowed to make payments or approve purchases, along with spending limits. A payment approval system will also help combat fraud within your business account.
- Setting up payment terms with vendors will help you manage and plan for AP and AR. For example, allowing vendors to pay you via an ACH transfer might be more cost-efficient than waiting for a check to arrive, and you’ll receive payment faster. When working with a vendor, developing and building a relationship will be helpful to your business. Read our blog that goes over 8 Tips to Create Strong Vendor Relationships.
- Try to negotiate longer payment terms with your suppliers. The longer payment terms will give you more flexibility in managing your cash flow.
- Lastly, be prepared to do regular financial check-ins and review these tips to ensure you’re on track with your business goals.
By following these simple tips, you can better manage your accounts, payables, and receivables and keep your business finances healthy. Contact your banker if you have any additional questions.