Accounts Payable Process Steps: The Second Major Cause of Poor Cash Flow

The second cause of poor cash flow relates to when and how money is spent in your business, and includes your Terms of Trade with suppliers.

When it comes to managing cash flow effectively, it is crucial to examine the underlying factors that contribute to its fluctuations. While the first cause of poor cash flow may be attributed to delayed customer payments, the second cause centers around the accounts payable process and how money is disbursed within a business. This encompasses the intricate web of financial transactions and the establishment of favorable Terms of Trade with suppliers.

By analyzing the timing and methods of expenditure, entrepreneurs can gain valuable insights into optimizing their accounts payable process, thus bolstering their overall cash flow position. In this blog, we delve into the critical role of accounts payable and shed light on its impact on cash flow dynamics, equipping businesses with strategies to enhance their financial stability.

Do you have spending budgets in place?

It’s best practice to prepare an overall business budget every year, usually before the beginning of the new financial year. It’s also best practice to make sure that team members with the authority to order products and services are doing so within the parameters of an agreed budget, and that controls are in place to ensure that department spending budgets are not exceeded.

Now is a good time to review (and document) your Accounts Payable process, from ordering right through to making payment.

When was the last time you reviewed your suppliers’ Terms of Trade and prices?

Terms such as payment expectations, discounts for early payment, late payment implications, insurance, and warranties are all worth a closer look at. What controls are in place to ensure supplier payments are made on time and discounts for prompt payment are maximized? If you’re not paying suppliers on time, you need to look at freeing up cash in other areas to ensure you’re meeting your payment terms.

Have you recently evaluated the pricing of your current suppliers and compared this with competitors’ prices? Your evaluation should include delivery charges, payment terms, and discounts.

There are many more strategies you can employ to minimize the risk of fraud and human error, maximize prompt payment discounts, and build strong relationships with your suppliers.

Take control of your cash flow and optimize your accounts payable processes today!

If you haven’t already, establish spending budgets and ensure that your team members adhere to them. Review your Accounts Payable process, from ordering to payment, and document any necessary changes. It’s also essential to assess your suppliers’ Terms of Trade and prices to ensure you’re getting the best deals. Evaluate competitor prices, delivery charges, payment terms, and discounts to make informed decisions.

At a Cashflow & Profit Improvement Meeting, HartPartners can guide you in minimizing risks, maximizing prompt payment discounts, and strengthening supplier relationships. Don’t let poor cash flow hinder your business’s growth—reach out to us now to improve your accounts payable processes and manage your cash outflows effectively.