Running a business means keeping a close eye on money coming in and going out. One area that can make a big difference in how much cash you have on hand is accounts payable (AP). It’s all about managing what you owe to suppliers and vendors. When done right, good AP habits can help your cash flow stay healthy and keep your business running smoothly. Here’s a simple guide to some best practices that can improve your cash flow management.
1. Get Your Payment Terms Straight
The first step is knowing exactly when your bills are due. Work with your suppliers to set clear payment terms that fit your business. For example, if they offer 30 days to pay, take advantage of that time to hold onto your cash a little longer—without missing the deadline, of course. If possible, ask for longer terms like 45 or 60 days, especially if your customers take their time paying you. Matching your outflows to your inflows can ease the pressure.
2. Pay On Time, Every Time
Late payments can hurt your relationships with suppliers and lead to fees that eat into your cash. Set up reminders or use accounting software to track due dates so nothing slips through the cracks. Paying on time doesn’t mean paying early unless there’s a perk—like a discount (more on that next). Keeping a steady rhythm with payments builds trust and keeps your cash flow predictable.
3. Snag Early Payment Discounts
Some vendors offer a small discount, say 1% or 2%, if you pay your invoice early—maybe within 10 days instead of 30. If you’ve got the cash available, this can save you money over time. Think of it like a little bonus for being prompt. Just make sure the discount is worth it compared to what you could do with that cash elsewhere in your business.
4. Keep Your Records Organized
Messy records are a cash flow killer. If you don’t know what you owe or when it’s due, you’re either paying late or scrambling to figure it out. Use a system—whether it’s a spreadsheet or software—to log every invoice, due date, and payment. Double-check that what you’re being billed matches what you ordered. Staying on top of this keeps your cash flow steady and avoids surprises.
5. Talk to Suppliers When Cash Gets Tight
Sometimes cash flow gets squeezed, and that’s okay—it happens. If you’re short on funds, don’t dodge your suppliers. Reach out, explain what’s going on, and see if they’ll give you a little wiggle room on payment deadlines. Most would rather work with you than chase you down later. Being upfront can buy you time without hurting your credit or reputation.
6. Go Digital with Payments
Writing checks and mailing them takes time and effort. Switching to electronic payments like ACH transfers or online bill pay can speed things up and cut costs. Plus, you can schedule payments to hit right on the due date, so your money stays in your account as long as possible. It’s a small change that adds up.
7. Review Your Spending Regularly
Take a look at your AP records every month or quarter. Are you spending more with certain vendors than you need to? Could you negotiate better rates or find a cheaper option? Spotting patterns in what you owe can help you cut costs and free up cash for other priorities.
8. Build a Cash Cushion
This isn’t directly about AP, but it ties in. By managing your accounts payable smartly—paying on time, taking discounts, negotiating terms—you can avoid draining your bank account. Aim to keep a little extra cash on hand for unexpected expenses. It’s like a safety net that keeps your business steady, even when sales dip or clients pay late.
Final Thoughts
Accounts payable might not sound exciting, but it’s a big piece of the cash flow puzzle. By staying organized, paying smartly, and keeping open lines with suppliers, you can make sure your business has the cash it needs to keep going. It’s all about small, practical steps that add up to better financial health. What’s one AP habit you could tweak today to give your cash flow a boost?
