Cash is King

In our May 30th entry we talked about managing invoicing and Accounts Receivable to improve cash flow. Because for small businesses, and especially start-ups, that’s what it’s all about – cash.  Sales, revenue growth, units sold, web site hits, social media mentions and market share – yes they all have a place – but cash is the most important of all.  In case you haven’t heard, cash is king.  Cash can solve just about any other business problem.  Don’t get distracted by other metrics.  Cash is king.

Some Pay Now – Some Pay Later

Many small businesses simply pay bills as soon as they are received and approved. This is simple and avoids accounting and administrative complexities.  No need for meetings to decide what to pay and when.  Just pay everything as received.  And as things grow, maybe print checks once a week rather than immediately.

At the other extreme, some businesses in peril don’t pay their bills, or pay only critical vendors. “The squeaky wheel gets the oil.”  If cash is low, this may part of the solution, so consider this and make intelligent choices.

QuickBooks Accounts Payable

QuickBooks, like other accounting software, allows bills to be entered by vendor. So enter all of the bills (even if they are not going to be paid anytime soon) including the vendor’s payment terms.  Then, hold periodic meetings or otherwise review and run the canned QuickBooks AP reports (usually Reports >  Vendors & Payables > A/P Aging Summary or A/P Aging Detail (may vary depending upon your version of QB).  Or in QuickBooks Online “+” sign > Pay Bills (maybe you already know this all too well).

How to Methodically Manage Accounts Payable

Look at cash in the bank, and make decisions off of that rather than adding in expected AR. And add payroll and rent which will often not appear in A/P.  Then consider who gets paid using your judgment on criticality to operations, reputation, aging, and other factors.  Some will not be paid but at least you will have a methodical approach to this rather than whatever bills are on top of the pile or are most bothersome.  Dragging your feet on AP in a methodical way may be an important tool in seeing your way through low-cash situations.

Communicate Payment Plans to Vendors

Now the hard part: communicating your intent to not pay now to certain vendors. This is better than just waiting for the collection calls.  It tells the vendor that you are on top of the situation and keenly managing everything.  Most will understand since these “you will get paid soon” situations are widespread in today’s tepid economic recovery (the slowest on record).  Also, with interest rates at basically zero, vendors are not losing interest income when funds stay on your side of the account rather than theirs.  Most want your business and will play ball if they think that you are sincere in working through this.

Due to the stress involved, it may be best to ask an accounting person to make these calls. This way it will get done rather than punted from one week to the next.  Another dreaded expectation is that vendors will immediately ask “so when will you be able to pay?”  And they will. This is where an accounting person – not the business owner – can say “I don’t have that information right now, however everyone will be paid.  I must just wait for approval – I will keep you informed.”

Manage AP in a Structured Manner

Cash is king. And managing accounts payable in a structured manner is an important tool in maximizing cash.