Management of accounts payable and receivable is one of the most crucial steps in a business setup. Only with efficient management of outstanding can you stay on top of your business avoiding any room for doubts.
What is Accounts Payable and Accounts Receivable?
Well, to simply put the definition of these two accounting terminologies, Accounts payable are amounts a profitable business owes mainly because it purchased goods or services on credit from the supplier or vendor. Accounts receivable are amounts a company has a right to collect because it sold goods or services on credit to a customer.
While managing Accounts Payable and Accounts Receivable is a bit of a juggle, it helps you get a thorough view of the cash inflow and outflow at a single shot. However, using accounts receivable and payable management software is like hiring the perfect employee who always follows your direction, never lets anything fall through the cracks, and works 24/7.
How to manage Accounts Payable and Accounts Receivable Efficiently
When you fail to diligently manage your accounts receivable, you put your business in jeopardy. Management of accounts receivable and payable are responsible for your cash flow, which you use to pay your debts, grow your business, invest in new technology, and accomplish dozens of other goals. Here’s how you can effectively manage these accounts and increase the transparency of your books of accounts:
1. Establish Credit Policies
Business owners detest long transactions which aren’t closed on time. The receivables department helps establish credit terms, which often vary according to the clients and their history. While newbies might not earn trust soon and so their credit ratings could differ, but regular customers who have always made their payments on time enjoy the liberty of getting a good credit rating. The payables department must always ensure that the payments are made within the time period given by the company, in order to avoid a hit on their credibility. Keeping a track of the accounts receivable and payable allows you to enjoy shorter transaction cycles, which means you can bid goodbye to longer cycles that might be symptomatic of workflow bottlenecks or low cashflow.
2. Management of Outstanding Bills
When a sale is made, the seller incurs some hard cost which includes labour and inventory. The only way you can match your inflow and outflow efficiently is by receiving payments within the credit time provided by you to the buyer. Every company that extends credit is taking a calculated risk of getting paid on perishable time or inventory. With effective accounting software, companies can easily manage delayed payments and which further affects the overall growth of the organisation.
3. Foster More Communication
One of the most effective ways to strike a balance between accounts receivables and payables, respective departments must consult the other on purchases and sales affecting the company. If it is noticed that there’s huge consumer demand, receivables can signal payables to order more items. If times are tight, payables may want to curb procurement until there’s greater stability. Clean Track of Bills Payables and Receivables (Bill-by-bill) -helps in healthier customer relationship and settling the disputes easily.
4. Use Automation to Track the Accounts
Documents used to track accounts receivable and payable are invoices, receipts, shipping orders, purchase orders, financial statements and others. When so many reports and data is involved, it is tricky to stay on top of everything without any errors. A cutting-edge accounting software like Tally will help you generate the necessary reports seamlessly and accurately and can help track anomalies such as delinquent accounts or interruptions in workflow.
5. Optimizing Accounts payable
Taking full advantages of credit period and delaying the payment as far as possible within the credit terms will help you to balance the cash outflow and inflow. But it’s also crucial to pay off the amount sticking to the credit period you have been provided by the seller. Considering vendors who offer flexible payment terms and discounts on earlier payment will help here as it will act as a boost your credit score.
Tally.ERP 9’s simple yet quick navigation helps to track and managing accounts receivable and payable. It is important not only for assessing overall performance but for helping managers and owners make smarter decisions that can influence an organization’s future. You can view details of the accounts receivables, accounts payables, ledger outstanding report, group outstanding report, ageing analysis report and bill party-wise outstanding report in Tally.ERP 9 at a flick.