As a business owner, you know there are endless tasks and a finite amount of time to get them done. This is especially true for small businesses that are working with lean teams and slim margins. One way to increase business efficiency is through systematic accounts payable (AP) and accounts receivable (AR) processes.
Let’s start with the basics. AP is what you pay or owe your vendors or suppliers for goods or services they provided in advance of payment. AR is what companies will pay or owe you for goods or services you provided.
A disciplined approach to record keeping of AR and AP can help small businesses boost their assets, cash flow, and business credit score.
An important consideration is whether to hire a bookkeeper or certified public accountant (CPA). A bookkeeper takes responsibility for the AP/AR fundamentals – ensuring you’re sending and paying invoices on time. A CPA may be more versed in the role accounts payable and accounts receivable play in tax implications and reporting requirements for your business.
If you opt out of hiring an accounting expert, then it’s important to employ AP and AR best practices to ensure business efficiency and financial accuracy.
Accounts Payable (AP) Best Practices and Tips
While paying bills isn’t the most fun part of owning a small business, improving your AP practices can help your organization take advantage of specific benefits if you follow these tips:
- Use purchasing software to help integrate your vendor files so you can quickly access all the data in a central location.
- Make online versions of your contracts, purchase orders, invoices, and payments to help eliminate paper files and ease auditing and financial reporting.
- Upgrade your invoice processes by assigning codes, matching invoices with payments and payment terms, record all payment information, and avoid fraud with cross-checking steps.
- Negotiate payment terms by automating payments (late payments and delinquencies will affect your business credit). Set reminders for the due dates of each bill and take advantage of incentives offered by your vendors for paying by ACH transfer or credit card.
Accounts Receivable (AR) Best Practices and Tips
If paying bills isn’t fun, then getting paid sure is! Here are some tips to ensure that AR is also working for you.
- Automate accounts receivable systems to quickly and easily receive and track payments, age past due accounts, and integrate with your general ledger.
- Check out your clients’ credit history to ensure you’re working with organizations that have a good record of paying in full and on time.
- Allow online payments via ETF, the client’s bank or apps such as Venmo (a subsidiary of PayPal), Apple Pay, Google Pay, and Zelle.
- Work with clients who have recurring payments with you to set those up for automatic payment and reconcile accounts weekly.
- Offer small discounts for 15-day payers, or negotiate other terms that make it advantageous for clients to pay you early and/or on time.
Automating for Business Efficiency
The common thread through AP and AR best practices is business efficiency. An investment in automation can free up time and resources that can be used for your small business’s other critical operations. Now that you know about AP/AR best practices, you can evaluate options to meet your needs.
PC Magazine researched and identified the best small business accounting software in 2020. Below is quick overview:
- Intuit QuickBooks: QuickBooks has been around for nearly 20 years and dominates the market. It is continually rated as one of the top accounting systems for small- to medium-sized businesses because of its flexibility, record-keeping, and integrations. Its cloud service (QuickBooks Online or QBO) is subscription based and allows subscribers to access the software from any web browser.
- Sage 50cloud: This system is noted for its exceptional customization. It recently released an integration with Microsoft Office 365, however it does not come with a comprehensive mobile app.
- Xero: In addition to typical accounting elements, this option offers functions related to account reconciliation, inventory management, and reporting. It helps small businesses manage fixed assets while other systems do not. It ranks low on usability and its mobile app.
- Kashoo: Kashoo is a cloud-based system made for the leanest of small businesses who just need simple income and expense accounting needs. It doesn’t offer product inventory or time-billing tools.
The AP/AR function may be a little daunting, but an investment of time and money can substantially boost your business efficiency. With solid accounting practices and smooth operations, your business will be prepared for future growth.