Ever heard about the business owner who has “everything in his head," including what he owes to vendors? Well, this can be an accounts payable mistake—a big one. What are some other issues to avoid when it comes to your payables? Jean Scheid looks at the top 5 A/P mistakes you can make.
1. I Know My Bank Balance
Really? I’ve met many a business owner, including some close friends and relatives, who swear they can keep a running tally of their business bank balance in their head. Unless you’re cutting the checks and paying your vendors yourself (and using some sort of spreadsheet program), believe me, this is a huge accounts payable mistake.
What about bounced checks from customers and the fees that are associated with those rubber ball checks? What about bank fees and credit card machine fees—all taken from your business bank account? No one can really know his bank balance (including business owners) unless the bank account is reconciled, so don’t make this mistake or your vendor checks will bounce.
Image Credit: (Freedigitalphotos)
2. There’s No Need for Scheduling A/P
Again, this is one of the largest A/P mistakes you can make. Even the simplest of accounting software programs will allow for you to enter invoices and receipts (via journal entries) as they come in. The purpose? It’s then easy to run an A/P report to see who you owe and how much you owe.
Take the time to enter in receipts for purchases as they come in—this will save you time in the long run and you will better prepared to manage your accounts payable effectively.
3. I Pay When I Can
Not only does this anger your vendors, your credit accounts could turn into cash-only accounts—fast, if you don’t pay on time. Most vendors are either net 10 or net 30, meaning you need to pay the account in full in ten days or thirty days. If you only pay “when you can," expect calls and nasty letters from vendors and suppliers.
If you find yourself in a cash crunch, call your vendors and make payment arrangements. In addition, if you don’t like the terms (meaning they fall on dates when you have other cash commitments), ask if you can change the payment terms.
4. My Accounts Receivables Will Cover A/P
If you’re not paying close attention to accounts receivable best practices, don’t expect those customers to remit payment on time or in full. Customers do and will attempt to avoid paying you last to pay other expenses such as their own payroll, sales taxes, and employee 941 tax expenses. If it’s a customer who doesn’t own a business, he may skip paying you to pay the mortgage.
Stay on top of your accounts receivables and if you have to, send out collection letters and call your customers. If they aren’t paying, you don’t have the cash; and this is one of the largest accounts payable mistakes you can make.
5. I Can Rob Peter to Pay Paul
Many a business owner does this, and it’s not really effective because the money you’re using to pay off your accounts payable vendors has to be realized some other way so you can pay other operating expenses.
Take time to analyze what’s most important and, when cash is low, whom you should pay first. Most business experts will tell you to pay employees, make your 941 tax deposits, and pay your sales tax and rent first. Call other vendors or suppliers of operating expenses and tell them you’ll be late. Don’t Rob Peter to Pay Paul—you’ll lose in the long run. Keep in mind that most vendors, unlike the IRS and your landlord, won’t induce penalties and interest when you’re late—they may even waive them if you call first.
These are the top 5 accounts payable mistakes you can make. You can, however, learn how to keep your A/P on an even keel while still paying other expenses. Follow these tips so you don’t fall into the trap of trying to find cash to pay vendors, and do make calls when you know you will be late with payments.
Image Credit (Freedigitalphotos)