Examining A/P is very important right now as credit starts to freeze
Cash is always king when it comes to the accounting of your small business, but especially right now. Nearly daily the headlines are filled with concerns about credit seizing up for smaller companies as a result of recent bank failures. And rising interest rates are also putting pressure on small businesses that otherwise might be borrowing capital to expand.
So now is a time when it may be cheaper to use your own cash than to rely on credit. Having a
good handle on working-capital management is one tool to help your business thrive during
economically uncertain times.
One way to improve working-capital management is by tuning up your Accounts Payable, or A/P, process.
There are numerous approaches here, but we will cover just three today:
First, you can often get a small discount if you pay your bills early. These vary, but are usually
around 1-3% of the total. Over time, these discounts can add up. If you can swing it, it can
make a lot of sense to take advantage of these discounts.
Second, think about the goods or services you will definitely be using in the long-term. Can you
negotiate better terms if you buy in bulk or pay for services annually instead of monthly? Go
through all your expenses this way to see if there are any opportunities for improvement in
your terms with suppliers. Especially during tough economic times, vendors are willing to
Third, if you are paying with ACH and you have the option to pay with credit cards with no
penalty, make the switch. You could be earning cash back or points towards other purchases
with a company credit card just for conducting day-to-day business. This is low-hanging fruit,
so you should take advantage of it where vendors permit allow.
SBS can handle your entire A/P process for you, implementing these and other techniques
(some of which we will discuss in future articles) to make your A/P as efficient and hassle-free
as possible, freeing up your employees’ time for other tasks.