There are few who count themselves as a fan of paying their bills. It's a regular chore which requires you to part ways with your money, after all. However, there are a couple of things you can do which make paying the bills slightly less painful for you and your bookkeeper.
The key to efficient account management is to make it a regular routine. Pick your least busy day of the week and set aside some time on this day every week to sit down with the bookkeeper and pay bills. Doing this on the same day as payroll is generally a good idea, unless this presents a problem with daily transaction limits imposed by your bank. Having a designated payment day will endear your business to vendors. Everyone likes the certainty of knowing exactly when they'll be paid. Just let vendors know that payments are made on a regular day each week.
Cash flow can be a problem for small business owners. When money is tight and there's bills to be paid, who should be first in line? You'll have to prioritize these with your bookkeeper; but typically, the list looks something like this:
- Critical Operating Expenses: payroll, tax office, telephone, utilities and rent
- Next in line are any vendors who will cease supplying your business in the absence of prompt payment
- After this are any vendors who come asking for payment
- All of the rest, in order of due date
Now, this list may not be ideal for every business. Work with your bookkeeper on a list which matches up with the specific needs of your firm. This list is meant only as a guideline. Using accounting software can make the entire bill paying process a lot easier, of course.
When using this kind of accounting solution, you'll need to make sure that all invoices are entered promptly upon receipt so that you can pull up Aged Payables reports and see at a glance how much you owe and how long these invoices have been outstanding. This is an invaluable aid to prioritizing your payment schedule.
You can also use accounting software to list payables by due date or invoice number. You'll find this useful when paying specific amounts on accounts payable rather than a monthly total. Remember that these reports are only as good as the setup of your accounting software. Different suppliers will have different payment terms, with payments being due in 7,14, 21, 28 or 30 days from receipt - payment may also be due in 30 days from the last day of the current month.
Having the correct payment terms for each account is vital to generating useful, accurate reports. If your accounts payable are improperly set up, you can use limited resources inefficiently by paying too early or anger your suppliers with late payments. Make sure to enter these terms accurate from the get-go and bill paying will be a much simpler task.
You'll also want a good filing system for hard copies of your invoices to make sure that every invoice is entered into your accounting software. Even a simple in/out box system works well for this purpose. There are those who choose to enter invoices only after they have been paid. If your business is among these, then make sure to set up a simple and logical filing system for invoices to ensure their accurate entry.
You can use any process which you and your bookkeeper find easy to work with. However, I've always found that entering invoices on receipt to be best. Instead of having to shuffle through a pile of paper invoices, you can let your accounting software worry about the bills for you - your focus should be serving your customers and making a profit, after all.
The more you can streamline your bill payments, the happier you and your bookkeeper will be.
If managing your books is proving to be an ongoing nightmare, you might want to check out our website - http://bookzkeeper.com.au - to find out more about our Accounting Survival kit for Small Business. It's the answer to your small business bookkeeping headaches. It was created by Alycia Edgar, a practicing accountant and small business owner with a busy practice in Australia, encompassing a large number of small businesses as clients.
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