Finance is a vital aspect of any given business, be it a small-scale or big-time company. Money keeps a company healthy and capable of growing. As much as possible, there should be an organized system in place for book managing and accounting.
When tracking a company’s finances, it’s important to be detailed. Marking each transaction as “income” or “expense” will not suffice. Two of the most important accounts that you need to know how to handle are accounts receivable and accounts payable.
Accounts receivable and accounts payable are two significant concepts in the world of finance. In accounting, accounts payable is essentially the money you owe to your external vendors (such as your suppliers). Accounts receivable, on the other hand, refers to the money owed to you by your customers for any products or services that you’ve provided. In short, the money that will go out of your company’s pockets is accounts payable while the money your company will be earning is accounts receivable.
In this section, we will be tackling the reasoning behind a good accounts payable system for your business. It’s best to have a tracking method that allows you to see any outstanding bills and handle payments that need to go out to your external vendors. Here are some of the best benefits that you can get out of integrating a good accounts payable system:
1 – It can automate part of the process
It’s evident that technology has changed the way we do business. If there’s one thing that can’t be denied, it’s that automation can do wonders for the efficiency of your business. Gone are the days when you had to rely on manual calculation. The accounting process can be quite tedious and time-consuming. Before software became widely available, bookkeepers had to manually record financial data, track payments, and process each one. Now that technology has given us an easier and more effective way to do things, it makes sense to utilise it to its fullest extent. A system can be set up so that financial transactions and payments made to vendors are created automatically. Imagine the time you’ll be able to save!
2 – It minimises the risk of human error
Manual accounting isn’t nearly as efficient as software, and this applies to your accounts payable method too. Not only does it take longer to record each transaction, but there is a risk of human error at every step of the process. Imagine not being able to pay on time or falling short on your payment to your external vendors, compromising the terms of your contract. If you pay in excess by mistake, there can be serious financial repercussions on your business. That’s why it’s practical to have a system that uses automation to keep track of every digit. There are built-in checks and balances that can help you catch potential errors, should there be any. This, in turn, makes it possible for you to address these errors as soon as possible.
3 – It helps you save money
Did you know that proper management of your accounts payable can help you safe money? Not only does it track costs down to a T, but it ensures that you can pay on time and stay on top of any upcoming bills. This means avoiding additional costs, such as interest charges and late fees. With a structured system that manages your cash flow, you will be able to cut on additional expenses and save money.
4 – It structures proper financial reports
Structuring your accounts receivable and accounts payable systems is paramount for your overall business financials. Not only is it an effective way to record and have access to vital financial reports, but it will help you review the financial flow of your company and come up with sound business decisions, be they big or small. The little details will add up, allowing you to have a clear picture of the financial health of your company.
// Final words
The aforementioned tips and benefits in automating and streamlining your accounts payable system will surely help your company steer in the right direction. In the end, the goal is to ensure that the company’s finances are managed properly—whether going in or going out.
If you’re looking for a cheap online accountant & bookkeeper in London, get in touch with us today for a free consultation!