June 10, 2019
Paying the Bills: Why Every Business Needs an AP System
Posted by Jenn McCabe
Are you a small business or startup that needs help paying the bills?
That’s a trick question. Maybe you said yes because you need help managing your cash flow, but let’s start with the basics. You can’t manage cash flow until, and unless, you have a solid structure for managing accounts payable (AP).
Too often, entrepreneurs start out by paying the bills themselves: They write manual checks in their spare time, or pay bills using an online banking platform. How hard can it be, right? If you’re doing this, stop it!
A small company can’t graduate and become a big company until cash controls are nailed. All companies also need a professional, controlled AP system. So start early. Understand and build a scalable solution from the get-go, so you’re ready to grow from having a few vendor bills to having hundreds without a hiccup.
What is an AP system?
What exactly is AP and why is it a helpful management tool? When you input AP, you don’t just write a check, and you don’t leave your bills in a pile on the kitchen table until you have cash and the time to pay them. Instead you:
- Enter the vendor bill in the Payables module of an accounting system.
- Let the bill sit there and “age” a bit.
- Regularly run an AP aging report to see all the bills to pay in one place. Putting your bills into the AP bucket where they pause allows time to thoughtfully approve payment.
- Last, pay the bills. Preferably this is paperless.
Building a modern system
Ok, you’re using a basic AP system. Now what?
Most companies that are early stage need to strengthen and modernize their bill-paying process. Without strong controls, cash disappears too quickly and vendors are paid late.
Modernizing AP system means using technology to set up a process where workflow is (a) managed by people who know what bills should be paid, and (b) assisted by people who know when bills can be paid.
Use a system where invoices are sent electronically and which allows for easy integration with your accounting software (Bill.com is a common tool). This allows for transparent processing of payments, which vendors like, and simultaneously allows your company to establish an electronic filing system. (Watch for some cool artificial intelligence tools coming out for this!)
Have invoices approved, also electronically, by someone who knows that the invoice is from a valid vendor who actually delivered a particular service. After invoices are approved, they should go into an AP system per the process above.
The accounting team—which in a controlled environment should not also approve invoices—can determine when bills should be paid based on available cash flow. Cash disbursements can be almost 100% electronically managed now, which allows for powerful control of disbursement timing.
Finally, get a tool to manage your credit cards! Credit cards are often an ugly pit where businesses lose their grip. In the worst case, fraudulent spending is not noted until it’s much too late. In the best case, this delays your financial statements and erodes accuracy of your financials.
By establishing some basic AP structure now, you can scale and grow while managing your cash and your vendors professionally.
Need help starting or modernizing your AP system? Talk to our Finance and Accounting Services team.
Jenn has more than 25 years of outsourced accounting and finance experience, with a particular expertise in startups and the advertising and creative production industries. She is passionate about seeing companies utilize the latest accounting technology to maximize their efficiency, productivity, and ultimately, success.
Before joining Armanino, Jenn founded and led Team Jenn Corp., a firm dedicated to the strategic financial management of startups and small businesses, offering a comprehensive back office solution with accounting, finance and HR solutions. Previous roles include stints at advertising giant Ogilvy and Mather, and in the cash management industry.
Outside of professional pursuits, she is passionate about fringe sports. To date she has made nearly 1,000 skydiving jumps. She carries the proud distinction of being a 4-Way Skydiving National Champion, which she won with three other adrenaline junkies in 1992. After that, she went on to compete at the National Triathlon Championships for several years. Jenn also climbed Aconcagua in Argentina, one of the great seven summits, without oxygen. These days she skis, scuba dives, cycles and reads a lot.
Jenn has a bachelor’s degree in economics from Pepperdine University and is a member of several professional associations including the National Society of Accountants, ProVisors and the Women’s Business Enterprise Network.