Everything you need to know about Accounts Payable
Small businesses live and die on getting paid. One key component of this is accounts payable, which is the payment of your suppliers for the goods and services they provide. Knowing how to manage accounts payable properly can help you manage your cash flow, improve supplier relationships, and ensure you don't risk getting sued due to late payments. In this post, we'll take a closer look at smarter ways for you to manage your accounts payable.
Accounts payable is the payment of monies a small business owes to its suppliers. In other words, it's what's owed to vendors by a business but has yet to be paid. When a small business purchases something on credit, meaning they pay after they receive the goods or services, the amount owed is recorded as an account payable. Whilst you might not see unpaid invoices as credit - because there is no interest or instrument involved - when a client invoices you and gives you 30, 60 or 90 days to pay, in simple terms, it's the same as any other debt.
History of Accounts Payable
The history of accounts payable can be traced back to the early days of trade. Merchants would buy goods on credit from suppliers and then pay for them later. The practice became known as "buying on account", and it became increasingly common as industries and businesses grew. Over time, the development of accounting software that could track and manage money flow between companies became a critical component of a small business's financial management processes.
Benefits of Accounts Payable
The benefits of managing accounts payable effectively include better cash flow management since you will know exactly when payments are due, and you won't find yourself in a situation where you cannot pay your bills on time. Additionally, having an efficient accounts payable system allows businesses to build stronger relationships with their suppliers since the vendor can trust that payments will be made on time. Accounts payable can also be used as a tool for managing inventory, as paying for goods early can help to ensure that inventory levels are kept low.
Managing accounts payable effectively can be challenging when you run a small business. To stay on top of it, you must put the right processes in place and use the right tools. Thriday has an excellent solution for accounts payable called Bill Manager.
Bill Manager automates the tedious task of manually checking invoice details, validating the payment amounts and inputting them into online banking to send a payment. Bill Manager solves this problem by using groundbreaking technology that scans any bill you upload or forward. Forwarding involves sending an email manually – or setting up auto-forwarding rules – so that invoices get sent to your unique Thriday inbox. When the scan is complete, the amount owing, due date and payment details are all retrieved, and you just need to hit approve to pay.
Thriday integrates banking, accounting and tax into one platform, so you don't need to set up and subscribe to multiple products. This integration eliminates the need to manually download and upload files from your accounting software to online banking. Thriday is one platform, one data set, and one hell of a way to pay. You can sign up for a free trial with Thriday today.
How Thriday Can Streamline Accounts Payable
Once you have set up your accounts payable system with Thriday, you should establish clear policies and procedures for processing invoices and making payments. Consider drafting guidelines for how invoices should be approved and processed and a schedule for when payments will be made. When making payments, monitor cash flow closely, and make sure that payments are made on time. Late payments can damage your relationships with suppliers, and they may even decide to stop servicing you if it continues. Finally, be wary of any changes in payment details. Fraudsters can intercept invoices, change the payment details, and forward them on. So always double-check the information provided, and if something looks suspicious, call the supplier to confirm.
Accounts Payable FAQs
What are accounts payable?
Accounts payable refer to the outstanding payments a business owes to its suppliers, vendors, or other creditors for goods or services received but not yet paid for.
What is the role of accounts payable in a business?
The role of accounts payable is to manage and maintain accurate records of the amounts owed to suppliers and vendors and ensure that payments are made promptly and efficiently.
How do accounts payable differ from accounts receivable?
Accounts payable and accounts receivable are two sides of the same coin. Accounts payable represent the money a business owes to its suppliers and vendors, while accounts receivable represent the money a business is owed by its customers or clients.
How do businesses manage accounts payable?
Businesses manage accounts payable by maintaining accurate records of the amounts owed to suppliers and vendors, monitoring payment terms and deadlines, and making timely and efficient payments to ensure good relationships with creditors.
What is the accounts payable process?
The accounts payable process involves:
- Receiving invoices from suppliers and vendors.
- Verifying the accuracy of the invoice information.
- Recording the invoices in the accounting system.
- Processing payments according to agreed-upon payment terms.
- Reconciling payments made with accounting records.
What happens if accounts payable are not appropriately managed?
If accounts payable are not appropriately managed, it can result in late payments, missed payment deadlines, and strained relationships with suppliers and vendors. It can also lead to inaccurate financial reporting and potentially damage a business's credit rating.
How can businesses improve their accounts payable management?
Businesses can improve their accounts payable management by implementing an efficient and accurate system like Thriday, maintaining good communication with suppliers and vendors, negotiating favourable payment terms, monitoring payment deadlines and cash flow, and regularly reconciling accounts payable records.
Doing accounts payable plays a vital role in financial management for any small business owner. It ensures that payments are made according to agreed-upon terms while helping business owners manage their cash flow more effectively and build strong relationships with their vendors. To ensure success with accounts payable, it's crucial to have an efficient system like Thriday in place. Thriday allows businesses to track payments accurately and stay compliant with accounting guidelines. With a proper process in place, managing your accounts payable can significantly benefit your business.