Small business owners need to ensure that their accounts payable (AP) and receivable are well managed. Otherwise, cash flow issues can become harder to spot, and this can snowball into major problems.

1. Review All Accounts Payable and Receivable

Start off by reviewing all of your accounts, both receivable and payable, which are key to the state of your cash flow. Make sure money owed to you (receivables) is coming in on time and that you have a system to deal with late payers. Then, make sure you aren't missing any noteworthy costs as you figure out your payables.

"Generally, accounts payable are your short-term debts, items you intend to pay off in the next 12 months," explains Rieva Lesonsky at Small Business Trends.1 "Longer-term debts are considered liabilities and are usually not included in AP. However, for purposes of managing cash flow, those payments must figure into your outflow. So, make note of all regular payments, such as your utilities, rent, insurance, Wi-Fi, payroll for employees, and payments to independent contractors, freelancers, and providers of professional services (accountants, lawyers), etc."

Lesonsky adds that you shouldn't forget smaller things like subscriptions/memberships, office coffee, seasonal expenditures, credit card interest, etc.

2. Ensure Accuracy

As you review, look for errors, and ensure that all invoices on both the receivable and payable sides are accurate so the figures you have don't misrepresent the reality of your current situation.

3. Beware of Fraud

Always be on the lookout for fraud, particularly with accounts payable. This is often where employee embezzlement takes place, and it's even possible that bad actors on the receiving end of payables may find ways to take advantage.

AllBusiness suggests actions like vetting vendors, looking for invoice irregularities, reconciling payable entries with the company checkbook, and looking out for suspicious phone numbers to prevent and detect accounts payable fraud.2

4. Establish Credit Policies

Offer credit policies to customers in good standing and take advantage of credit with your own payables.

"One thing owners and managers don’t like is when transactions take a long time to close," says Nick Boariu at Procurify.3 "Receivables departments often establish credit terms, which may vary according to the clientele they serve. Regular customers with good credit ratings receive a greater flexibility period for payment, whereas first-time customers may not be given as much leeway. When it comes to payment terms, most companies establish terms at 15–30 days. Accordingly, payables departments should pay suppliers as soon as the shipped items arrive in good condition. If you do so, you might even be able to take advantage of discounts offered by suppliers for early payments."

5. Get Organized

As with any budgeting or financial practices, staying organized is key to properly managing accounts payable and receivable. Doing so will help ensure that outgoing payments are made on time and that you stay on top of receivables to keep cash flow in a good place. It can be difficult to stay on top of either payables or receivables without an element of organization.

6. Get Automated

Automation is another major help to stay organized. Set up automatic payments through online banking to avoid falling behind on payments. Ask your bank about services that link your payables and receivables to your accounting software.

7. Get Authorizations in Order

Make sure you know who is authorized to sign, pay, and collect payments. There should be no confusion, and knowing who is responsible will help reduce potential fraud. Some businesses choose a dual-control system in which two people must sign for each expenditure.

8. Use Reminders

Set up reminders for both payables and receivables. If you aren't using auto-pay for some bills, it will be helpful to be reminded when they are due. Even if they are automatically paid, it can still be useful to be reminded that money is being withdrawn from your account. On the receivables side, reminders about outstanding invoices can also be helpful in reminding you to follow up on payment.

9. Have Clear Payment Terms

Everyone involved in a given transaction should be absolutely clear on payment terms so there is no confusion about the amount, hidden fees, or when exactly payment is expected. This applies to both payables and receivables. For receivables, make expectations clear on the invoice and in any other communication you have with the customer.

10. Offer Options

For receivables, give your customers options for how to pay. You are much more likely to get a timely payment if you accept more forms of payment. Be flexible and help them pay you.  

Accounts payable and receivable can be a lot to keep up with, particularly for smaller businesses with few employees and lots of duties. Smart, organized management can help you maintain a healthy cash flow with few errors.

1. https://smallbiztrends.com/2021/02/manage-accounts-payables-receivables.html

2. https://www.allbusiness.com/detecting-and-preventing-accounts-payable-fraud-12375493-1.html

3. https://blog.procurify.com/2016/05/05/tips-managing-accounts-payable-receivable/