We all know that accounts payable is more than just paying the bills. A poorly managed accounts payable can harm your profit margins, while a well-managed accounts payable can boost your bottom line.
It is not uncommon for companies to attach more importance to profits than to expenses. Expenses, like revenue, impact profitability as well. Thus, accounts payable management also has a direct effect on the bottom line of your company.
You can learn what you need to do to make sure your payables have a positive impact on profitability by reading on.
Top 3 Ways Accounts Payable Management Impacts Profitability
1. Vendor Relationships
Probably goes without saying, but it’s still important to mention: always pay your bills on time. Managing accounts payable is the first step to benefiting your bottom line.
Your ability to pay on time and in accordance with the agreement will not only prevent you from incurring unnecessary late fees on your bills, but it will also protect your credit history from bad marks while assisting you in building a good working relationship with your vendors and suppliers.
As a result, your business will have established a sterling reputation for repayment, which will enable you to take advantage of the best terms and conditions when it comes to cash flow-friendly payment of inventory and other supplies (including the best rates and payment due dates). Credit cards can be a great way for businesses to reduce overall expenses and increase profits.
You’ll also be more likely to work with a vendor if you run into a problem when you need to pay them, since they’re familiar with you and have a stellar history.
Besides paying on time, making payments early may also increase your profitability. You might assume that holding onto your cash for as long as possible and paying your vendors at the last minute is always the best strategy for payables. Even though this might be true – especially if you experience frequent cash flow shortages – paying early can sometimes be advantageous.
When you pay your invoice or statement ahead of the due date, many suppliers offer a discount for early payment. Pay early if your cash flow is strong and your cash flow is positive. Profit margins will grow as a result.
2. Better (or Worse) Cash Flow
In order to stay in business and be profitable, it is crucial to manage cash flow well. Accounts payable management can have a significant impact on your cash flow and, consequently, on your profitability.
Keeping cash in your business for as long as possible (by extending accounts payable days) can improve cash flow if your company is suffering from cash flow shortages. Therefore, if you’re short on funds, wait until the bill is due before paying it.
A longer repayment period or delaying payment will enable you to keep more cash available for your business. This ensures that your business’s cash is flowing out in a timely fashion. In a cash-flow pinch, prioritize your payables by focusing on those due now, ones past-due, and those with the highest interest rates.
Take advantage of your good relationships with your suppliers now if you think you might be facing cash flow problems. Let your vendors know what’s happening and ask them if they can accommodate your needs until your cash flow improves. If you risk tarnishing the relationship or not being paid, you will likely have more difficulty getting your suppliers to repay your debts.
You will be able to avoid cash flow shortages if you pay close attention to your payables and the effect they have on your cash flow.
3. Hours Spent on Manual Work
Paying bills is something everyone is familiar with. Paying bills takes more than a few seconds in a business.
We can’t emphasize enough how important automation is (As experts in “Zero Entry Accounting”, we are experts at automating the back office. When clients come to us, we see the problems caused without automation.)
During the course of your business, you will likely work with more suppliers and vendors, each with a different cycle of billing and a different schedule of payment due dates. Some payments should be made early and some on time. Others may offer electronic payment options, while others will require a check.
It takes some time to open envelopes, read physical invoices, approve expenses, cut checks and sign into secure payment servers (both yours and the employees’). Accounts payable management requires a tremendous amount of resources when handled manually – just to send money out!
It is therefore imperative that you automate your accounts payable function. Accounting automation will help you save time and also help you reduce overhead costs and cut labor costs associated with bill payment.
Further, automating processes will allow your employees to focus on higher-value projects that are intended to generate revenue instead of spending money. Increasing productivity and boosting the bottom line are guaranteed with automated accounts payable management.
Automate Accounts Payable Management With a Fully Integrated Back Office
It doesn’t matter how many vendors you work with or how many bills you have to pay, your business will benefit from automating a variety of processes, including accounts payable.
You will be able to save time double-checking invoices, paying bills, and signing checks, along with keeping a complete record of all your business expenses. With your receipts automatically categorized and up-to-date, audits will be simplified, tax filings will be simplified, and report generation will be simplified and streamlined.
Therefore, you won’t only have less headaches paying your company’s bills, you’ll also ensure that you’re making the most of every payment you make.