Accounts payable is an essential component of any small business’s accounting processes. Your business’s accounts payable department maintains a record of all the money you owe to suppliers and other creditors. A well-functioning accounts payable department will help you ensure that you pay any money you owe to other individuals or businesses as promptly as possible and in line with any payment arrangements, you might have with individual creditors.
For many small businesses, the accounts receivable department consists of a single person for whom accounting might be just one of several duties they perform. However, it’s never too early to start thinking about how your business will manage its accounts receivable. One person might be enough while your business is relatively small, but as it grows, so will your needs. By getting all your accounts receivable processes and policies in order now, you can save yourself a lot of trouble further down the line when you have more to manage. The tips below are all geared toward small businesses, but they will prove invaluable throughout your company’s growth journey.
1. Start automating
As a small business with relatively few accounts to keep track of, forking out cash for accounting software might seem like an unnecessary expense. However, even if you are doing just fine without it, there are still a couple of reasons it’s worth the cost.
First and foremost, if you pick the right software now, you can end up with something that will stay with your business as it grows and serve you well long into the future. Most business accounting software today is available on a subscription basis and provided as a cloud-based SaaS. That means you can adjust your subscription as your business grows, adding new features and capabilities on an opt-in basis. It’s hard to overstate the value of this continuity and the potential long-term savings you could enjoy as a result.
Aside from the benefits of continuity, automated systems are more efficient and less error-prone than humans. Even a small mistake in your accounts receivable department can have big ramifications if it means that you’re late paying a supplier or, worse, you submit inaccurate data when you file your taxes. It’s easy to overlook the possibility of financial and other repercussions of errors that your staff make when they aren’t making any. Unfortunately, no one is perfect; someone in your accounts receivable team will make an error eventually. As the volume of invoices they have to process increases, so do the chances of human error rearing its ugly head. Introducing automated accounts payable processes now means you can keep your lifetime error rate as low as possible.
Finally, using software automation to manage your accounts payable will free up your staff and enable them to use their time more efficiently. Your entire business will benefit from the inevitable increases in productivity that will result.
2. Transition to a paperless workflow
Going paperless isn’t just about saving trees, although that is a fortunate side effect. Every paper invoice you process is costing you time and money, removing them from the equation will save both. Digital invoices are much quicker and easier to process, and they will help you get the maximum possible benefit from your new automated systems. Like automation, a paperless approach to your accounts payable processes will minimise or eliminate unnecessary work for your staff.
Not only is a digitised workflow more reliable and efficient, but it also means you can get rid of bulky filing cabinets and use other storage space more effectively. As your business grows, finding space for all the documents you need to retain for your records can present a serious logistical challenge.
3. Establish a regular auditing schedule
Using an automated digital workflow to process your accounts payable will go a long way to minimising the potential for errors, but no system is perfect. Remember, even a seemingly small mistake in your accounts payable can have much larger ramifications when it comes to your financial reporting, not to mention your day-to-day planning. One of the reasons accounts payable is so important is because it lets you see how much cash you have available to spend after you account for the portion of it you owe to your creditors. Errors in your accounts payable can give you a false picture of your current cash flow. It’s also important to spot errors as early as possible so you can determine whether they are a one-off occurrence or the result of improperly configured software.
Ideally, your workflow should include safeguards that prevent simple errors, like numbers being input incorrectly by a person. Good accounting software can alert you to any potentially fraudulent invoices and flag up anything suspicious for a manual review. However, these systems are designed to identify fraud; they won’t help you catch accidental errors.
Fortunately, while your business is still relatively small, it should be fairly simple to carry out regular account reconciliations, along with a more detailed annual audit. Many small business owners think this kind of accounting work is something for larger businesses with dedicated accounting teams. However, while a detailed audit of your company accounts might require a professional accountant, ensuring that your accounts payable are accurate is something that most business owners should be able to handle themselves. Most accounting software will include features designed to make it easier for you to do day-to-day auditing and reconciliation on your own so you can maintain an accurate picture of your current cash flow.
4. Prepare your team for growth
Even the healthiest and most successful small business will collapse under its own weight if it tries to expand too fast. The accounting processes and workflows that work just fine for small businesses won’t necessarily hold when the volume of trade is much higher. If you think your business is growing at a steady rate and an expansion in the near to mid-term looks likely, you should prepare your accounts payable team accordingly.
The Accounts Payable Association offers a range of courses and certifications that can not only provide your staff with the training they need to operate in line with prevailing industry best practices, but also enable your business to signal to future creditors that you take accounts payable seriously. Whether you’re approaching a new supplier or an investor, APA certification signals that yours is a business that stays on top of its accounts and settles debts reliably.