While running a business, you are constantly buying supplies, hiring services, and establishing collaborations. Because these transactions are valuable, you’re usually not paying up-front or even immediately as the goods are delivered. Instead, you get an invoice you must pay in 30 to 90 days (unless there’s a different arrangement in place).
Here, there’s more than just money at play. Usually, you’re collaborating with your strategic vendors, which means that by skipping a payment, you’re deteriorating trust. This can have much more horrifying consequences than any late penalty fee you must pay. Moreover, being too late with your invoice can ruin your credit score.
Fortunately, in the 21st century, you have many options to handle this issue for good.
Why is this so important?
Account payables are one of the biggest parts of your financial management. They’re crucial for your cash flow because account payables determine most of your operational expenses. While daily operational expenses can be significant, account payables are usually the largest bills.
This determines your creditworthiness in the business world. A single missed payment may not sound like a big deal, but it paints you as less professional in the eyes of your partners. Just think about it, we live in the age of account payable automation. This means that you can set up automatic payments and avoid the likelihood of ever missing a bill. So, if you fail to make a payment, this can mean one of two things:
- You’re still doing things manually. This implies that you’re either not as tech-savvy or not as professional as you would like people to believe you are.
- You don’t have enough money on the date when a bill is due. This speaks volumes of your insolvency and may give birth to some nasty suspicions from potentially important partners.
In other words, other than just helping with your finances, this is one of the most important components in your partner/supplier relationship management.
How does an AP automation process work?
The procedure is fairly simple.
You receive an invoice from your supplier to be paid by a specific due date. Manually, you would have to fill in all the information (which usually doesn’t differ every month). The problem is that unless you set great reminders and hold yourself accountable, you might miss a due date (completely unintentionally).
Second, since accounting requires you to correctly enter all the supplier’s data, you risk making a mistake when preparing a payment.
With the help of AP automation, you can avoid all of this.
All you need to do is set some basic payment info the first time around, verify it, and you can rest assured that there will be no human errors in the future. You can also rest assured that all the bills will be paid on the scheduled date. All you need to do is ensure that there is enough money in your account on that day. Not an easy task, but at least you don’t have to worry about the administrative side of the affair.
It saves time, face, and money
First, by not requiring you to make all the payments manually, AP automation can help you save much time. Unless you’re paying a professional accountant, you must take someone off their core tasks to do this. Even if you have an accountant, there are more pressing matters for them to tend to than dealing with simple payments that software could handle for them.
As we’ve already mentioned, a missed payment can be quite embarrassing. So, with the help of this automation, you can avoid a scenario in which you have to undergo this ordeal.
Online payments are, on average, a lot cheaper than their traditional counterparts. When you add AP automation into the mix, the entire process becomes even less expensive.
Also, by making payments on time, you might be able to score a discount or two. At the very least, you’ll avoid having to make late payment fees. Moreover, a timely payment preserves your credit score. This is a combination of saving money and saving face.
Because these platforms offer an option of full customization, you can easily adjust it to your organization and business process. Remember that most of this software can be seamlessly integrated with any other digital tools or payment gateways you use.
Think about the future
Another thing to consider is that the number of your account payables will grow in the future. This is why AP automation is so scalable. You set the system early on, and you get to benefit from it for years to come. This is why it’s such a great accounting idea for small businesses.
While you only have several such invoices every month, it will be easy to handle them even manually. However, what happens when the number of these invoices increases? You might soon find yourself in a bit of trouble.
The increase will be subtle, which will make everything even more problematic. You’ll just add one invoice at a time to your to-do list, and before you know it, you’ll find yourself in a position where you can’t do it all in a designated time.
By automating these few invoices, you’ll save a bit of time now but hours and hours in the future. After all, with each new regular account payable, you just add them to the list and forget about them. When done right, the system is completely autonomous as long as the data is valid and the account has enough money. In other words, providing funds becomes your only worry.
In the end, understanding that you need to pay your bills when they are due is not just basic financial literacy; it’s also common sense. Account payable automation is the most efficient way to tackle this issue. It reduces the likelihood of human error and increases financial efficiency. This way, for as long as there’s enough money in the account, you never risk missing a payment. Not only that, but you suddenly have one less task to focus on. Instead, you can work on more pressing matters (like assuring that the account we mentioned previously has enough funds).