When your business starts growing, bills have a way of piling up. One supplier sends an invoice by email. Another drops a PDF into someone's inbox. Then there are subscriptions, rent, utilities, contractors, and all the other expenses that keep the business running.
At some point, keeping track of everything in your head just doesn't work. That's when having a simple accounts payable process becomes important.
You don't need a huge finance department or a stack of forms for every $100 purchase. You just need a system that makes it clear what you owe, who approved it, and when the money needs to leave your account.
What Is Accounts Payable?
Accounts payable is basically the bills your business hasn't paid yet.
If you order $2,000 worth of supplies today and your supplier gives you 30 days to pay, that $2,000 is sitting in accounts payable until you settle the invoice.
The accounts payable processis everything that happens between receiving that bill and paying it.
Someone needs to check the invoice. Someone needs to make sure the purchase actually happened. The bill needs to be recorded. If approval is required, somebody has to approve it. Then the payment needs to be made and entered correctly in the books.
The problem for many small businesses isn't that any one of these tasks is difficult. It's that there isn't a consistent way of doing them.
When everyone handles bills differently, things tend to fall through the cracks.
Why AP Can Become a Cash Flow Problem
Here's a situation many small business owners have experienced. You look at the bank account and see $30,000.
It feels like you've got some breathing room. Then you remember that payroll is coming up, the tax payment is due, and three suppliers are waiting for a total of $12,000.
Suddenly, that $30,000 doesn't look quite so comfortable. This is why accounts payable managementis closely tied to cash flow management. Your bank balance tells you what is sitting in the account right now. It doesn't tell you how much of that money is already committed.
Keeping track of upcoming bills gives you a much more realistic picture.
A Simple Accounts Payable Process for Small Business
A small business can handle most of its AP needs with a straightforward routine.
Put All Your Invoices in One Place
Decide where invoices should go and stick with it.
Maybe you create an email address specifically for bills. Maybe you use a shared accounting system. Whatever you choose, the important thing is that invoices don't end up scattered across five different inboxes.
Imagine your bookkeeper is trying to find a $3,500 supplier invoice from six months ago. If it is sitting in one central system, that's easy. If it might be in the owner's Gmail account, an employee's desktop, or a drawer in the office, it's going to take much longer.
Centralizing invoices sounds like a small change, but it can make a surprisingly big difference.
Take a Minute to Check Each Bill
Don't pay an invoice just because it came from a vendor you recognize. Have someone look at it first.
Is the amount right? Did the business actually order the product or service? Does the invoice match what was agreed upon?
Let's say your regular IT company normally bills $800 a month. One month, the invoice comes in at $2,300.
Maybe there was a one-time project, but somebody should know that before the payment goes through.
The same applies to quantities and prices. A supplier could simply make a mistake. Catching that mistake before payment is a lot easier than trying to get the money back afterward.
Make Sure Someone Approved the Expense
Not every purchase needs a formal committee meeting. For example, you might decide that department managers can approve routine expenses up to a certain amount, while anything larger needs the owner's approval.
The exact rules aren't important as much as having rules in the first place. If an employee can order something, approve the invoice, and send the payment without anyone else seeing it, you've created an unnecessary risk.
For a very small business, completely separating these duties isn't always possible. In that case, the owner can review payments regularly.
Record the Bill
Once an invoice has been checked and approved, enter it into your accounting system.
Don't rely on memory. The record should normally include the vendor, invoice number, amount, due date, and expense category. If there is a dispute or question later, you'll have something to refer back to.
It also makes your financial reports more useful because they reflect bills that have already been incurred, even if the cash hasn't left the bank account yet.
Don't Pay Every Bill the Day It Arrives
This is where AP starts to become useful for cash flow management.
Some business owners pay invoices immediately because they don't like having bills hanging around. It feels good to clear the list.
But clearing the list isn't always the best financial decision. Suppose a supplier gives you 30 days to pay. If there is no discount for paying early, there may be little reason to send the money on day one. That cash might be needed for something else in the meantime.
At the same time, you don't want to start paying late. That can result in fees, awkward conversations with suppliers, or less favorable payment terms in the future.
A better approach is to know your payment dates and schedule payments accordingly.
Keep a List of What's Coming Due
A simple spreadsheet can be used to show:
- Vendor name
- Invoice amount
- Invoice date
- Due date
- Approval status
- Payment status
That one list can tell you quite a lot.
Maybe you notice that $18,000 in payments is due over the next ten days. That's useful information. You can look at expected customer payments and other expenses and decide whether the business is in a comfortable position.
This is one of the practical benefits of good cash flow management.
Technology Can Make AP Less Tedious
There is nothing wrong with using a spreadsheet if your business has a small number of bills. But once invoices start coming in every day, manual work gets old quickly.
Accounting software can help organize invoices, send approval reminders, schedule payments, and keep payment records in one place. That's useful because AP automation can reduce a lot of repetitive work.
Nobody wants to spend Friday afternoon searching through emails for invoices that should have been paid on Wednesday. Automation can take some of that work away.
Just don't assume software means you can stop checking things. Someone needs to decide whether the bill is legitimate.
What About Bill Pay Services?
Bill pay services can be useful when the business owner or employees are spending too much time dealing with routine payments.
For example, invoices can be uploaded, sent to the right person for approval, and then scheduled for payment. That can be particularly handy if the owner isn't always in the office.
It also gives the business a record of what happened. If someone asks whether an invoice was paid, you don't have to rely on memory.
Of course, payment security and user permissions matter. A convenient system isn't much help if everyone has unrestricted access to the company's bank information.
When Should You Consider Accounts Payable Services?
Sometimes the problem isn't the system. It's simply the amount of work. A company might have 100 invoices a month but not enough AP work to justify hiring another full-time employee.
In that situation, accounts payable services may make sense. An outside provider can handle some of the vendor payment process, such as entering invoices, organizing documents, preparing payments, and following up on outstanding items.
The business owner can still retain approval authority. This arrangement can be a good fit for companies that are growing but aren't ready to build a full accounting department.
A Few Things You Really Should Watch
You don't need a complicated AP policy. A handful of basic habits will cover a lot.
- Be careful with changes to vendor bank details. If a supplier emails asking you to send future payments to a new account, verify the request using a phone number or contact method you already trust. Don't simply reply to the email.
- Watch for duplicate invoices. This happens more easily than you'd think, especially when invoices arrive by email and paper.
- Keep your records. Save invoices and supporting documents somewhere they can actually be found later.
- Review unpaid bills regularly. Don't wait for vendors to remind you that something is overdue.
- Reconcile the bank account. What your accounting system says you paid should match what actually came out of the bank.
- Look twice at unusual charges. A large jump in a recurring bill is worth investigating.
How Outsourced Accounting Services Such as AccountiPro Fit In
AP is only one part of running the financial side of a business.
If your bookkeeping is also behind, bank accounts aren't being reconciled, customer invoices aren't being followed up on, and you rarely have current financial reports, you may have a bigger issue than unpaid vendor bills.
That's where outsourced accounting services like AccountiPro can help. At AccountiPro, we handle bookkeeping, accounts payable process, accounts receivable, reconciliations, and financial reporting.
For a growing small business, outsourcing to an accounts payable services provided can be an easier option than trying to hire several different people to handle each job. Book an appointment with us today so that you can have more time to focus on the actual business instead of spending evenings catching up on bookkeeping.
