Controlling Cash Flow Begins with Payables Management

It’s no real surprise that money flowing into a business receives a lot of attention, which is why so much emphasis is placed on tracking sales and revenues. It may surprise some business owners, however, that it is through the money flowing out of the business when they can make the most significant and controllable improvements in their cash flow. In fact, with a streamlined and automated payables process, businesses can realize immediate benefits of reduced costs for invoice processing, account reconciliation, and check writing, while enjoying the use of their cash for longer periods of time.

For any business, a well-conceived payables program can mean the difference between positive and negative cash flow at any time, and a well-managed payables program can mean the difference between black and red on the bottom-line. Consider all of the benefits a payables management programs can deliver:

• Streamline and automate accounts payable functions
• Improve the overall efficiency of your payables processes
• Control the timing of disbursements
• Better manage creditor and vendor relationships
• Reduce the risk of fraud
• Reduce staffing costs
• Optimize cash flow and working capital
• Gain more control over spending
• Increase cash flow from interest earnings on idle cash

With any one of these outcomes, cash flow and profit margins can be immediately improved; so, consider the upside should you be able to achieve all of them. Fortunately, the digital age has spawned a number of payables management solutions that can enable any business to significantly impact its cash flow. The tools available to businesses today can streamline the process, reduce costs, and put them in control of their outflows for optimum cash flow.

Here are five of the most effective payable management practices any business can employ for immediate results.

Expense Management

The most immediate solution to controlling the amount of money that flows out of your business is to more effectively manage your expenses. Every business strives to reduce expenses wherever possible, but it is in the management of expenses where long-term solutions are found. For example, getting a one-time price break may bring temporary relief, but, through an ongoing process of reviewing expenses and supplier costs, a business can achieve sustained savings. In choosing vendors and suppliers, favorable payment terms can be more important than prices.

Control Employee Expenditures

Employee expenditures can easily get out of control without a system for monitoring and managing the authorization of purchases. A business credit card with pre-authorized spending limits and real time account monitoring is the best control mechanism for employee spending. Many business credit card issuers will allow you to set individual and group spending limits based on employee and management needs. In addition, they will allow you to assign unique merchant category codes for each employee.

Stretch Your Payments

Review your vendors' payment terms and determine when payment is due (30, 60 or 90 days). Then schedule your payments around the precise due dates rather than an internal payment schedule. The objective is to keep cash in your business as long as possible which can enhance your cash flow. Where possible, renegotiate terms to stretch out your payments. This is best achieved using an automated payables system linked to the Automated Clearing House (ACH) or Electronic Funds Transfer (EFT).

Make Payments Electronically

There is nothing that drains business resources more than writing and mailing checks and then waiting for them to clear before reconciling the business checking account. Electronic payment solutions, such as Automated Clearing House (ACH), Electronic Funds Transfer and online banking enable businesses to streamline the payables process while increasing its reliability.

Automate Your Payroll

Automated payroll solutions can save time and money for small businesses that can better utilize staff resources for other, more critical business functions. Outsourced payroll solutions can reduce costly errors while increasing employee satisfaction.

Partner with a Small Business Banker for the Most Suitable Solutions

The small business/banking relationship has changed dramatically in just the last few years. The digital age has ushered in new technologies bringing large-scale cash management and centralized processing to small businesses in ways that weren’t imaginable a decade ago. Now any business can link into the Automated Clearing House through its bank and benefit from streamlined collections and payment processes. The days of letting cash sit idle when it could be earning interest and still be available for payables are over. And, having the ability to manage all cash management functions online through a centralized portal provides the small business owner with a level of control that was unheard a few years ago.