If you’ve read any of our advice before, you’ll know that we believe full visibility over, and a deep understanding of, your accounting processes is vital to implementing effective credit control.
Effective credit control is vital to ensuring that you have enough consistent cash flow and, given more than 50,000 small businesses go insolvent every year because of cash flow issues, good credit control processes are a vital part of keeping your business afloat.
To help both you and your business, today we’ll be covering the basics, what are the differences between your accounts receivables and accounts payable?
We’ll also be offering some advice and resources you can use to improve your accounting best practices.
What are your accounts receivables?
Your accounts receivable, sometimes shortened to AR, is a ledger of outstanding invoices that have been issued to customers but have yet to be paid.
This covers invoices that have aged past their payment terms and are now overdue, as well as any lines of credit that have been offered by your business.
At its most basic, your accounts receivables are a record of the money owed to your company by those you’ve invoiced.
All your receivables are classified as a current asset, because the vast majority of the invoices you send out will be turned into cash within a year.
However, if you have very long payments terms in your credit agreements, some invoices may be classed as
If you’re just setting up your business, we’ve created an accounts receivable template you can use to build your own accounts receivable spreadsheet as well as ten easy-to-implement tips you can use to improve your accounts receivable process.
What are your accounts payable?
Your accounts payable are essentially the inverse of your accounts receivable.
It records the invoices issued by your customers to you and represents your obligation to pay your suppliers or creditors.
For instance, if you’ve ordered and received certain materials from a supplier, and they’ve invoiced you for those materials, that invoice would be recorded in your accounts payable
All your payables are classified as a current liability.
So, what is the difference between accounts payable and accounts receivable?
Essentially, your accounts payable and accounts receivable are two pillars of your accounting process that allow you to keep tabs on the amount of money you have coming in and the amount you have going out.
Why are your accounts payable and accounts receivable so important?
Your accounts payable and receivable are far more than passive ledgers you use to record figures in. They are the key to implementing effective credit control and keeping your cash flow consistent.
One of the major problems encountered by small and medium enterprises (SMEs) in the UK is late payments. Nearly 50 per cent of all invoices issued by UK SMEs are paid late, leaving the average small business trying to make for a £32,185 hole in its cash flow.
Additionally, late payments can also cost you money. The average UK SME actually spends four hours a week chasing late payments.
That’s 16-hours every week in staff wages and time spent changing late invoices that could be spent growing your business.
Having an effective handle on your accounts payable and receivable makes you far better able to get paid faster and more consistently, while also managing any financial risks to your business.
How to make your accounts payable and accounts receivable work for you
There are a number of ways that you can use change the way your accounts receivable and payable operate in order to ensure more consistent cash flow and offset the current trend in late payments, including:
Using digital accounting software
Pen and paper accounting is a slow and inaccurate way to run your accounts payable and accounts receivable and updating that system doesn’t have to mean investing huge amounts of capital in new systems or staff.
Accounting software tools like Xero, Quickbooks, and Microsoft Dynamics 365 Business Central have a huge range of useful tools you can use to streamline your accounts payable and accounts receivable processes and make them more effective.
Even better, all of the accounting software tools above can integrate with the Chaser add on to allow you to implement more effective credit control.
Our innovative automation systems allow our customers to save more than 15-hours per week on chasing outstanding invoices and get paid an average of 16-days sooner.
Upgrade your invoicing
Inaccurate invoicing slows down an accounts receivable process already substantially delayed by how often invoices issued by small businesses are paid late.
In order to combat this, you’ll need to use a pro forma invoice template that highlights all the required information and makes your payment terms very clear.
One of the reasons that we include the Payment Portal with every automated invoice reminder sent by our system is so our users’ clients always have access to the correct invoicing and payment information.
Negotiate the best terms for you
When it comes to your accounts payable, don’t be afraid to go to the negotiating table to get the best terms for your business.
Negotiating longer payment terms on your credit accounts and payments for goods and services frees up your cash flow and allows you access to a greater amount of working capital to grow your business.
Let Chaser help you get the best from your accounts payable and accounts receivable
If you’re still struggling with how to get the best from your accounts payable and accounts receivable, we’re here to help.
Reach out to us today to book a demo or start your free trial to see how Chaser can help you get the best from your accounts payable and accounts receivable.
