Paying your bills and cashflow

Paying your bills and cashflow

No one likes paying bills. Not only do you have to part with your well-earned money, but it can chew into your valuable work time. A few simple strategies will make “bill paying day” much less of a headache for you and your bookkeeper.
The most important thing to remember when managing your accounts (invoices) is that you do it on a regular basis.

I recommend selecting a particular day each week for you or your bookkeeper to pay your bills. You may want to do it on the same day as payroll – although your bookkeeper may identify issues with transaction limits in online banking systems.

One benefit of having a set day for paying bills is that you’ll keep your suppliers happy. If they’re chasing payment of invoices, they will appreciate a timeframe for payment. So, for example, if you have a regular payment day (e.g. Wednesday), then you or your bookkeeper simply tell them that their payment will be made in the next payment run on Wednesday.

When your cashflow is tight, how do you know who to pay? My approach is to prioritise. You might want to work on this list with your bookkeeper, but generally you should rank payments in the following order:

  • First: payroll, tax office, telephone, utilities and rent (business critical operations)
  • Second: suppliers that will cease supplying you with their goods if you don’t pay promptly (stay in their good books!)
  • Third: suppliers that bother to chase you up
  • Fourth: the remainder in due date order.

Of course, this list may not suit everyone – I have refined it over many years working on both sides of the fence and in small business. Again, seek the help of your bookkeeper when prioritising.

An accounting software program is a great way to remove the pain from bill payments.

Firstly, it’s important that you or your bookkeeper regularly enter invoices (before paid). This generates an “Aged Payables Owing” report, which shows you exactly how much you owe to your suppliers. It’s a great report as you can tell how old your outstanding invoices are, and you can use it to prioritise who to pay this week.

Another report on accounting software lists the payables owing by invoice and date due. You or your bookkeeper will find this handy when you want to pay individual amounts rather than a monthly total.

The validity of these reports is dependent upon how you set up your suppliers within your accounting system.  Suppliers can have different terms of trade:

  • Due in 7, 14, 21, 28, 30 days
  • Due 30 days from last day of the month.

If these are not set up correctly, then your reports will be useless. For example, if supplier terms were “30 days from last day of month”, but you enter them as “30 days”, you’ll pay them too early.  If cashflow is tight, this is not the best use of funds. It reflects the data theory: garbage in = garbage out. Take the time to enter your supplier data correctly at the start, and your job will be easier down the track.

To support your accounting software, make sure you’ve got a good filing system. All you need is a manila file or in-tray to hold “invoices to be entered”, and you enter these weekly into your accounting program. Once entered, place in the “unpaid invoices” folder; once paid, move to the “paid invoices” folder.

Some businesses and bookkeepers prefer to enter invoices into their accounting software after they are paid. If you take this path, it’s important to file unpaid invoices in the “unpaid invoices” folder, and then once paid, move them into a “paid invoices to be entered” folder. This will ensure they are entered into your accounting system – and once entered, they can be filed in your “paid invoices” folder.

Whichever method you choose, make sure it suits you and /or your bookkeeper’s current processes. You may start by only entering invoices once paid, but find it difficult to keep track of when to pay suppliers. This might be the time to enter them into your accounting system, and let it do the worrying for you.

After all, the less headaches when it comes to bill payments, the better.

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