Steady cash flow is essential for the survival of every business, and this can be assured by maintaining a perfect balance between accounts payable and accounts receivables. On the one hand, business owners need to track the amount yet to receive from customers while calculating the amount they owe to suppliers/creditors.
Hence, it is important to ensure proper accounts payable management as well accounts receivable management to avoid disruption in any form. Here, we share tips on successfully managing accounts payable and accounts receivable; read on.
Accounts Payable And Accounts Receivable: A Brief Overview
As the name suggests, accounts payable means processing of payment that business/organisation owes the debtors (the amount you are liable to pay). Accounts receivable is exactly the opposite, meaning it is the money owed to a business by debtors (amount customers are liable to pay for the products purchased/services availed from you).
As individuals are now aware of the idea of accounts payable and account receivable, let’s learn about managing these efficiently.
Smart Tips To Manage Accounts Payable And Receivable
Below are explained some tips to manage accounts payable and accounts receivable efficiently:
- Create Credit Policies
It becomes burdensome for business owners and managers when monetary transactions take longer than needed. Therefore, the accounts receivable department usually creates credit terms. This may vary from one client to another. Customers with a decent credit history enjoy flexible repayment periods. On the other hand, new and first-time borrowers may not get such lucrative repayment terms. Companies usually set a payment term of 15-30 days. Depending on this, the accounts payable department must pay suppliers after shipped items arrive in good condition. Making a timely payment can allow business persons to avail discounts from suppliers for early payment.
- Shorten Transaction Cycle
Businesses trying to maintain a shorter transaction cycle for both the products bought and sold can save a substantial sum on labours engaged in these tasks. A longer transaction cycle can result in low cash flow, which may happen especially when businesses wait for payments for a sale before repaying the supplier.
Businesspersons can avoid such circumstances by creating a timeline to deal with accounts payable hastily. Hence, it is ideal for creating shorter receivables timelines as well as payables. For this, every business must establish a department that can promptly issue invoices, purchase orders, and other documents and ensure following this routine.
- Manage Older Accounts
Businesses must record all transactions and issue statements on a regular basis. Alongside they must take care of the older accounts and ensure there is nothing pending. In case of pending accounts, they must take immediate action to clear the balance. To make sure every due is settled and an effective accounts receivables management, business persons must create a policy and state the maximum repayment period. This rule applies to accounts payables to find out if suppliers are not getting timely payment and arrange ways/timelines to repay them at the earliest.
- Opt For Automation Process For Tracking
One of the most effective ways to manage accounts payables and accounts receivables is through the automation process. When businesses track accounts payables and receivables, they must issue invoice receipts and documents related to shipping orders, financial statements, purchase orders, etc. Missing out on any document can create future confusion. Here, if businesses opt for accounts payable software, they can automate all these transactions and track accounts that are sitting idle or any negative incidents related to workflow.
Here, business persons can avail optimal, digitised services from Capvel. In addition, businesspersons can enjoy automated workflow, centralised communication, and other accounts payable and account receivable management benefits.
Efficient accounts payable management and accounts receivable management is necessary to evaluate the financial health of a company. The habit and practice of thorough tracking and managing these two departments helps a business assess the overall performance in a particular timeframe and gives them the power to make informed decisions for the overall growth.