EA - Effective Steps to Designing a Good Accounts Payable System

7 Effective Tips for Designing a Good Accounts Payable System

One of the most important things you can do as a small business owner is to design a good, organized system for managing your books. Do you feel like you have a handle on your accounts receivable and accounts payable system? Today, we are sharing a few tips to help if you are looking for ways to improve your bookkeeping and accounting practices.

While there are tons of resources online about small business finances, sometimes it can be a trick to know where the actionable points are that need to be implemented into your system. Our team at Easier Accounting has put together some of the “best practices” that will keep your systems running smoothly, giving you a good foundation to help your business grow.

Accounts Payable System: What is it?

It can be hard to understand the lingo if you aren’t familiar with the accounting industry. Your accounts payable system is the tracking method that you are using to see the outstanding bills and handle payments that need to go out to your external vendors.

There are many times when your business receives products or services, but the payment isn’t issued upfront. Instead, you are billed for the amount due; then payment is sent within a specified timeframe. For example, a vendor that provides office supplies for your office will send an invoice that shows the due date for the payment that needs to be remitted. These accounts payable invoices are basically short-term debt liabilities that need to be paid right away.

Accounts Payable vs. Accounts Receivable

Don’t be confused by the two terms used in the accounting and bookkeeping industries: accounts payable and accounts receivable. As mentioned above, accounts payable is the tracking of balances that you owe to other vendors. On the other hand, accounts receivable shows the invoices that you can collect on: the balances owed to your company from your customers.

A good bookkeeping and accounting system will include systems for both accounts payable and accounts receivable tracking. This information needs to be managed so that you can be sure that money is always in the bank when it is time to pay the bills that are due.

Why Accounts Payable Matters

It can be hard to keep track of all of the payments that are due if you don’t have a good filing and tracking system for the invoices that are coming through. Not having a good accounts payable system in place means that you could miss payment due dates, often resulting in late fees and interest charges. If payments are missed altogether, then your services could be disrupted, or the balance might be sent to a collections department.

Without the right bookkeeping and accounting system, your vendors will lose patience, and your reputation will suffer. It’s hard to keep your business running if you don’t have control over your cash flow.

7 Tips to Improve Your Accounts Payable System

As you can see, you must have a good system in place to manage your accounts payable system. Here are a few tips and benefits if you are looking for ways to implement a new system or upgrade your current system:

  1. Leverage Automation: Technology has transformed the way you can do business. It makes sense to leverage automation whenever these features are available. There’s no reason for you to spend time on busy work (like manual financial calculations). With manual calculations, you need to not only receive the invoice that comes through, but also record the information, track the payment date, and ensure that the payment is processed at the right time. This process can be tedious and time-consuming.
  2. Minimize Human Error: Unfortunately, there is always the risk of human error at every step of this process. This busy work can be skipped by using a system that uses automation to track everything. Not only will your system be streamlined, but you can avoid common problems that occur if mistakes are made. A good accounting system has built-in checks and balances, helping you catch potential errors if they occur. This proactive approach is essential for minimizing the risk of on-going fraud within your organization. We live in a time where fraud is a potential risk in any business, so you need to be diligent about protecting the interests of your company.
  3. Save Money: It might seem counterintuitive that paying bills will save you money. But, remember that staying current with those outstanding bills makes it possible for you to avoid additional costs, such as interest charges and late fees. If you are trying to manage your cash flow, then you need to be sure that you are proactive in avoiding unnecessary expenses for interest and fees. A good accounts payable system reduces the likelihood of late payments because you are always staying ahead of the balances that are due.
  4. Improve Communication: When you are using the right accounting and bookkeeping system, you can utilize built-in communication features that keep your vendors and clients updated on the status of invoices. One thing to consider: sometimes early payment discounts are offered if payment is received in a certain timeframe. Improved communication through your accounts payable system means that you might be able to leverage these discounts by paying the invoices early when money is available.
  5. Simple Financial Reports: Centralizing your accounts receivable and accounts payable systems is an effective way to have access to important financial reports. When you are making business decisions, both big and small, it is smart to have a clear picture regarding the financial health of your company. These reports can be accessed quickly and easily, giving you the information necessary to make educated decisions regarding the money that is spent.
  6. Eliminate the Paperwork: Do you feel like it’s a hassle to deal with paperwork that is always moving across your desk? In addition to the immediate management of the papers, you also need to have a filing system in place so that you can reference the documents whenever they are needed in the future. This mess of paperwork can be avoided by going digital. Choose an accounting system that offers cloud storage solutions. As a result, you can see your bookkeeping and accounting information at any time, even if you are away from the office.
  7. Built-In System for Following Up: Cash flow is an ongoing battle for many small business owners, so you need to be diligent about keeping track of the payments that clear your bank account. For example, you could potentially run into issues in the future if one of your vendors is late with the deposit of your check. As a result, the transaction might clear months later, which could throw off your cash flow if you don’t have a good system for tracking. Double down on your tracking system by using an accounting system that not only tracks the outgoing payments, but also automates the follow-up to track when the balance cleared the bank account.

Is it Time to Upgrade Your Accounting System?

Are you enjoying all of the benefits listed above? If your accounts payable system isn’t working to improve your business systems, then it is time to re-evaluate your options. There’s no reason why you should be scraping by with a poor system or limited financial tracking. Businesses with problematic accounting systems can expect to encounter serious problems in the future. In fact, a bad accounting system typically leads to cash flow issues… which might be the cause of business failure.

You can avoid these issues by staying proactive with your accounting systems. Make sure that financial tracking is a priority within your company. Be diligent about keeping these systems current and accurate, giving you the peace of mind to know that financial reports are always correct when you are looking at the numbers.

Tapping into Expert Advice

The great thing about implementing a new accounts payable system is that you don’t have to “reinvent the wheel.” Instead of wasting your time and money on unproven systems, it’s more effective to tap into the expertise offered by a team that knows the best solutions in the industry.

Your job as a small business owner is to focus on business growth, employee management, and the many other responsibilities that pop up on a daily basis. Don’t waste your limited time on busy work and bookkeeping tasks! Instead, you can use technology, expert services, and a good accounting software to optimize your processes and improve overall results for your company.

For more information, Easier Accounting is always here to help. We are working hard to offer affordable, effective accounting and bookkeeping solutions for small business owners. Our team has worked with small businesses in a variety of industries. We understand the nuances of financial management, and we’re here to help you implement an accounting system that works for your needs.

You are welcome to call us at Easier Accounting to learn about the services that are available. Reach out at your convenience to have a conversation with one of our helpful team members: (888) 620-0770.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *