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8 accounts payable tips and tricks for small businesses

A bicycle shop owner managing AP online.

Businesses big and small have one thing in common: they all need to pay their bills. The difference is large corporates will typically have a dedicated department just for accounts payable (AP), while smaller businesses usually have just a couple of people handling it, and, more often than not, at least one of them is also the owner and CEO. 

This can make AP extra challenging, even overwhelming at times, for small and medium-sized businesses (SMBs). Luckily, there are some tricks you can use to improve your business’s AP workflow that don’t require much resources. In fact, implementing them can save you time and money, while ensuring your cash flow and your vendor relations are in top health. 

Before we get into the particulars of what you can do today to improve your payments process, let’s start by covering some of the basic language around business payments, so we’re all on the same page.

First, what’s accounts payable, anyway?

Unlike business-to-consumer (B2C) transactions, business-to-business (B2B) deals are typically paid for in net terms. Depending on your agreement with your vendors, this means the bill is actually due 30, 60, or even 90 days after the goods or services were provided.

So, any open bill you get from vendors is considered accounts payable until the transaction is complete. You can think of AP as a type of short-term debt owed by your business to your vendors. That’s why AP is listed under liabilities in your balance sheet.

Is that the same as accounts receivable?

No. You can think of accounts receivable (AR) as the other side of the net terms coin. Open invoices for goods or services provided by your business to customers are considered AR until you are paid in full.

Why is AP so important?

No business can operate without paying the bills for its operational costs. Properly managing the money going out of your business is important for:

Accounts payable tips and tricks you can implement quickly

If you’re keeping your AP in-house, here are a few steps you can take to improve the process without breaking the bank.

1. Batch your payments

Unless they’re in the accounting and bookkeeping industry, most SMBs don’t need to handle and send out payments every day. It may seem like small potatoes but our brains are not built to quickly move from task to task so every time we shift our attention to different types of tasks, we tend to waste a lot of time. And time is one of the most scarce resources for any small business owner. 

So, as long as you’re organized about it, you can set specific dates—say, the first and 15th day of each month—to handle all your outgoing payments in one sitting.

While you’re handling all your payments on specific dates, you still want to avoid paying too soon and depleting your cash flow. Using a payments platform like Melio to manage your AP, you can maintain your concentrated payment dates to maximize efficiency, while scheduling the payments in advance to ensure they leave your account at the best possible time for you, not a minute early.

2. File invoices right away

This may sound like we’re contradicting ourselves, but filing and paying invoices are two completely different things. 

It’s important to handle any invoice you receive right away to make sure it doesn’t fall through the cracks. Whether that means sending it over to the person responsible for AP or adding it to the pipeline for the next payment date yourself, don’t be tempted to just put it aside until it’s due. 

That’s a surefire way to forget all about it until you get that angry call from your vendor letting you know you missed a payment and made irreparable damage to your relationship. 

Luckily, this is another aspect of AP that can be done more easily when using a digital tool.  With Melio, you and your vendors can send invoices to a unique email address. Once an invoice is received it is automatically added to Melio as a bill, complete with all the relevant information.

3. Set up payment approval workflows

Whether your payments are done manually or digitally you still need oversight and control over the money coming out of your account. Whether you want to supervise it personally or delegate to someone else on your team, it’s important to have a clear payment approval process

This means a set of rules determining who in the company can send payments and which transactions require approval from higher up. 

For example, you can decide that certain members of your team are allowed to send payments under $300 without additional approval while others need to get a green light for transactions as low as $150. You should also decide who needs to approve each payment, whether it’s the CEO or a direct manager. Payments to a new vendor or a new account for an existing one, always require further scrutiny, so be sure to set up a rule for such scenarios as well.

4. Be mindful of fraud attempts

Everybody likes to think it’s not going to happen to them but fraud is far more common than you would think, costing businesses around 5% of their revenue each year, according to the ACFE (Association of Certified Fraud Examiners). 

Small businesses are a prime target for fraudsters as they’re usually less aware of the risks and have fewer resources to fight against them. Still, even with limited resources, there’s a lot you can do to protect your SMB from fraud

When it comes to accounts payable, even just by double-checking that the information on the invoice matches your records and asking the vendor directly whenever you’re in doubt, you can significantly limit your exposure.

5. Negotiate and re-negotiate

Better payment terms give you more flexibility, making it easier to handle your AP. But, most vendors won’t volunteer to improve existing terms or offer a new customer favorable terms  unless they are asked.

So, it’s time to pick up that phone and call up your vendors to: 

  • Ask for more time. Instead of net-30, ask if they can live with a net-60 or 90 arrangement.
  • Request bulk concessions. If you’re a big customer or are able to accommodate large stocks of nonperishables, your vendor may be able to give you a special price.
  • Check about early bird discounts. If you’re able to pay early, this could mean a lot to your vendors and their cash flow. They may even be able to reward you for it with exclusive deals.  

This 10-minute call could prove invaluable to your business, so we really recommend you take the time and pluck up the nerve to do it. The worst that could happen is you get a no. Nobody will stop working with you because you politely brought up the terms of your agreement.

6. Go digital

Paper invoices, checks, and other manual AP processes are messy and prone to error. Yet, many businesses still use them to handle payments. 

Some business owners may believe doing things manually is the most cost-effective way to go. Others may think manual processes give them more control. And many are using checks simply because their vendors don’t accept other payment methods. 

Switching to a digital payment platform like Melio to manage your AP online helps:

  • Slash time wasted on manual processes so you and your team can focus on generating revenue.
  • Automate recurring payments such as rent and utilities so you don’t have to do them over and over again. 
  • Minimize human error, such as typos, that can be costly and time-consuming to correct.
  • Track every payment from one place to ensure no bill is left unattended.
  • Cut costs on labor, physical items (such as checks, envelopes, and printer ink) bank fees, and services including postage and delivery.
  • Reduce your carbon footprint by going paperless.

7. Centralize your payments

Try to use a single bank account to pay all your business bills. This will make it much easier to keep track of all your business payments and make sure you correctly file each of them in your books.

Whatever you do, never mix your personal and business finances as this can have ramifications on your legal requirements, liability, credit scores, and taxes.

8. Pay with a credit card (your vendor doesn’t have to know)

If you have bills that are due soon but your cash flow cannot support them at the moment, consider paying with a credit card. This way, the money is sent to your vendor right away and they get instant confirmation, while you only need to cough up the cash on your next billing cycle. This could mean as much as 60 days of additional breathing room until you get a cash infusion. 

Paying with a card also means collecting cashback, miles, and points on business transactions that are typically larger yet go unrewarded. 

And, if you use Melio to manage your AP, you can choose to pay with your credit card* even if your vendor doesn’t accept cards. They’ll just get a paper check in the mail or an ACH bank transfer, whichever they prefer, and you won’t have to worry about it.

Unlock the benefits of efficient accounts payable

A better AP process is key to the success of your small business and following the tips above will get you there. 

Digitizing your accounts payable is one step you can take today to help streamline the process while improving cash flow, saving time, and reducing costs. 

Start by signing up for Melio. There are no subscription fees and it only takes a few moments to set up your accounts and start managing your AP the smart way.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.