Need to know if you can afford to throw a new piece of machinery on the books? When you manage AR on a daily basis and AP on a weekly basis, you’ll easily know whether you can add that expense!
So why do we recommend managing AR daily and AP weekly?
Of course, in business, it is better to receive than to lend. By looking at your account’s receivable on a daily basis, you’ll have a clear idea of when money is coming in and when it’s late.
Businesses that are sales-focused organizations tend to neglect this area of accounting because they have prioritized new sales as a method of receiving working capital. But you don’t want to keep extending credit to customers that don’t pay on time! By focusing on AR daily, you’ll be able to enforce late payment penalties and will know which of your accounts are in good standing.
Carrying overdue costs is a slippery slope and many businesses do not visit their AR as often as they should be. Late AR jeopardizes your cash flow which costs you indirectly by not being able to invest in equipment or holds up product launches. It’s also bad for the balance sheet.
Invoicing and billing can be automated through most accounting software, as can the reminders, but that doesn’t mean the payments from clients will be!
As we said, it’s better to receive than to lend, but that doesn’t mean you shouldn’t pay your bills.
Visiting your accounts payable on a weekly basis ensures you’ll be on top of what’s coming in the next net15, net30, and even net60, in order to prioritize payments accordingly.
Sometimes a credit extension is a good thing and sometimes it’s not. If you can get a payable extension but that makes the bill due when you have another massive AP deadline, it might not be worth it to hold off on the payment.
Extending payables to free up cash flow is definitely a strategy some of the time, but it’s not always a good thing. Especially in times of economic uncertainty, it is better to pay your bills on time. Not doing so can result in delays, eroding goodwill of the supplier, slower delivery times, and slower responses in general. You can also benefit from discounts for early payment! So, it’s worth looking into as a strategic approach to payments.
Optimizing payables this way can actually free up more working capital and cash flow in the future, instead of putting off bills until the moment they are due.
By spending a bit of your time each day to reconcile these accounts (it’s easy, we swear!) you’ll be in a better position to take action and make more strategic business decisions.
There are many assets at your disposal, you just need to integrate them and will be provided with a clear and automated way to provide business insights and almost see into the future.
Making informed decisions is much easier and more comforting than a shot in the dark!