August 6, 2019 | Last Updated on: June 28, 2023
All small business owners know the challenges of business bookkeeping and the pain of juggling bills across the month.
The financial management of your accounts receivable and accounts payable takes a great deal of time and energy to ensure that your business has sufficient cash on hand to pay its bills. Some bills are small, others are large, some come by email and others by mail. Your bills may have due dates scattered across the month or they may all fall on the same date. It’s time consuming to keep track of invoices, and if you miss them or don’t have enough cash on hand, your business can incur late fees and interest penalties. The good news is that there are things you can do to streamline your business’s bills and to gain flexibility in your cash flow. Here are 5 strategies to get you started on the right path to business bookkeeping.
Did you know that most vendors will permit you to change your monthly bill due dates? Maybe, for cash flow reasons, you can’t afford to have all of your bills don’t fall on the same date — or perhaps you want all your vendor payments to fall on the same date so they’re easy to keep track of. In most instances, you can adjust your bill due dates to meet your needs. Whatever the case, it is usually as simple as a phone call to the vendor or utility that is providing the service. You may even be able to do it through your own bank accounts if they offer online bill pay. The bottom line is that most vendors and banks are more than happy to adjust your due dates.
Explore whether you can put your business bills on a business credit card. The point of this is to provide 30 days (or more) of breathing room with bills, since the credit card company fronts the money and you simply pay the credit card bill once a month. Additionally, you may be able to generate rewards points or other rebates for your business with your use of a business credit card. One downside is that vendors who normally accept direct deposits or checks may resist being paid by credit card because they will often have to absorb a payment processing fee. In other to get them to agree to accept a credit card, you might offer to cover or split that fee. If your vendor refuses and you still want to use a credit card for the payments, you can explore products like Plastiq that allow you to pay vendors with a credit card – you simply pay Plastiq with your credit card and Plastiq will cut a check to the vendor.
Work with your vendors to extend your payable process and invoice approval workflow as long as possible, even as far as net 60, net 90, or net 120 so that you can hold onto cash for longer. Adjust your invoice approval process so that you don’t pay invoices any earlier than they are due (unless there is a strategic reason to pay them earlier such as building goodwill with a particular vendor). If you are using a manual accounts payable or business accounting system, you might consider switching to an AP automation software or online accounting service like Bill.com or Xero. Either of these will allow you to schedule payments to occur on a particular date. Some of these systems even offer iPhone and Android apps so you can monitor your business’s cash flow on the go. This will help ease your cash management worries and give your business more time to breathe with the cash it has. Be prepared for your vendors to resist extending payment terms. Consider offering them something in return to make it worth their while.
In that same vein, work to accelerate your payables so that your business has more cash on hand to pay bills when they come due. If your business is dealing with late payments, work with your customers to make sure that they are paying on time. Work with your customers to speed up your required payable timeframes. If you are invoicing and requesting that customers pay in 30 days, consider asking them to pay in 20. If your existing customers resist or refuse, you might opt to implement the policy just for new customers. In addition to adjusting your payables terms, which is more of a “stick” approach, you can use a “carrot” approach and offer your customers incentives for paying earlier, such as bulk or early payment discounts. Getting paid sooner means that your business has a more optimized cash flow, and the additional cash on hand can be used to pay bills when they come due. This can help reduce your anxiety that you won’t have enough to pay any given bill. Whenever possible, you should also try to store away cash reserves that can be used in the event of an unexpected bill.
A revolving line of credit provides an ongoing means of borrowing for your small business. You can borrow money in increments throughout the month, which will enable you to pay bills when they come due without worrying about having exactly the right amount of cash on hand. With a revolving line of credit, you only get charged interest on what you borrow, and the “revolving” nature of the line of credit means it carries over from month to month. You can draw down funds from the line of credit, pay them back, and draw down again. A line of credit may be unsecured or secured (by collateral) and interest rates can vary depending on the creditworthiness of your business. A business credit card is a form of a revolving line of credit but there are also business lines of credit where you can get real cash from a bank or lender, which may be more useful for paying bills. You can also explore “invoice-backed” lines of credit, which are particularly useful for small businesses that find themselves having cash flow issues. Invoice-backed lines of credit help you cover your bills during the time period where you are waiting for your invoices to be paid by customers. Business bookkeeping is more than just entering figures in a finance program. Actively attending to your finances can improve efficiency and free-up precious cash resources for your small business.
