June 04, 2018
If you think “accounts payable" simply refers to bills that must be paid, you're missing out on an important business strategy tool. When the AP function is strategically integrated into your business, it can drive cost savings, time savings and bottom-line growth.
“Accounts payable can actually be a profit center when managed strategically," said Astella Frisco, manager of treasury product management at City National Bank. “If you want to grow your business but your bookkeeping is less than optimal, growth simply isn't sustainable. But if you think strategically about accounts payable, it can help facilitate business growth."
Revenue is one of the biggest challenges of growth for small business owners. Utilizing your accounts payable system to optimize some of your business functions is one way to overcome that challenge. Consider these four ways to integrate your accounts payable function with your business strategy to help your company save time and money.
Rather than always shopping for the lowest price on supplies or services, you can save time by building ongoing relationships with a few suppliers. And when those suppliers know you'll come back to them again and again, they're often willing to offer you discounts.
By keeping your vendors and suppliers paid up and paid on time, you'll build loyalty among them. Loyal vendors and suppliers are more likely to give you discounts, work hard to meet your needs in a pinch to help you win more customers, and help build your business in other ways.
When you've developed long-term relationships with suppliers, you may be able to cut costs by working with them to develop monthly or quarterly purchasing agreements, or by maximizing discounts for bulk purchases.
For instance, at Salon Cristina in Schenectady, N.Y., owners John Murphy and his wife Cristina Badia have built relationships with a mix of vendors for different needs. “One may be good for bulk purchases, whereas another is better for emergency needs," Murphy said.
If you're still handling accounts payable manually, writing checks and using spreadsheets, you may be leaving time and money on the table. With automated tools such as City National's Book2Bank, business owners can connect their bank accounts to their bookkeeping functions, helping to ensure that their accounts payable records are auditable, secure and easily accessible.
Book2Bank offers automated invoice capture so you never lose or duplicate an invoice, and sends out checks automatically so you'll never forget to sign a check. Also, “it's completely secure and mobile, so you can handle accounts payable tasks anywhere you have an internet connection," Frisco said.
“Accounts payable directly impacts cash flow," Murphy said. “It's one aspect of your business that can be controlled."
Work with your vendors to spread payable due dates out so that those dates will correspond with your receipt of receivables. Strategically scheduling your payables can provide flexibility in your cash flow and help ensure that you have cash available when you need it. It can also help reduce your credit obligations allowing you to move forward without a corresponding increase in receivables, Murphy said.
Your payment terms, due dates and vendor relationships directly impact your banking opportunities, Murphy said. For instance, if you're able to accurately describe and illustrate your cash flow situation based on payables and receivables, your banker may be able to offer more services such as overdraft protection, money market accounts and lines of credit.
In Murphy's case, having a handle on his cash flow position helped his salon establish a better banking relationship, which in turn increased his cash flow through solutions such as overdraft protection, investments in money market funds and a line of credit.
“From an outside view, accounts payable directly reflects your business responsibility, thus impacting your business in many areas, such as banking relationships, available cash, credit and payable terms," Murphy said.
Rather than simply writing checks, take a hard look at your accounts payable function. By integrating it with your business strategy, you may be able to also fuel bottom-line growth. You should also consider how you're managing accounts receivable to ensure you have the funds you need to achieve your accounts payable strategy.
This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.