Chapter 6

How to manage accounts payable

Paying bills isn’t glamorous. But they’re debts and need to be dealt with. Let’s look at how to manage accounts payable.

What is accounts payable?

If you have bills, you have accounts payable. It’s the opposite side of accounts receivable and the aim is to pay bills on time, without running your bank balance too low.

Why does it matter?

You want to maintain good terms with suppliers – if you’re slow paying them, they may stop your credit or delay deliveries.You also need to think about cash flow. Your bank balance could take a beating if you paid everyone at once. And that would leave you with little cash to cover other expenses, unexpected costs, or to fund business growth.

How to manage accounts payable

  • Bills from vendors are first recorded as money owed.
  • They’ll then go through an approval process, to make sure the goods or services were received.
  • Once approved, payment is scheduled according to the vendor’s payment terms. The longer your payment terms are, the better for your cash flow. On the other hand, it’s nice to take advantage of early payment discounts if they’re on offer.
  • When payment is made, the books are updated to show the bill isn’t owed anymore.

Remember your balance sheet? It’s also called your statement of financial position. It’s best to ensure the amount of money owed to you as accounts receivable is more than what’s owed by you as accounts payable.

Modern accounts payable management

You can enter bills into your ledger by typing them in or by emailing them to your accounting software. There are also clever software apps that read and extract data from bills and automatically send it to your accounting software. The accounting software creates the book entry and helps you schedule payments, then updates your ledger when the bill is settled. Many aspects of the accounts payable process are now automatable – which can save you heaps of time on admin. To learn how to automate accounts payable, read our guide.

Disclaimer

Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

How to do bookkeeping

Bookkeeping includes everything from basic data entry to tax prep. Let’s look at the core jobs and see how they’re done.

  1. How to do bookkeeping

    Small businesses can do their own bookkeeping or outsource to professionals. We look at how to find a good balance.

  2. Setting up a chart of accounts

    Stepping up to do the bookkeeping in a new business? You may have to set up the chart of accounts. Let’s look at how.

  3. How to do bookkeeping data entry

    Data entry is the foundation of bookkeeping. Enter the numbers right and you’ll learn exactly how the business is doing.

  4. How to do bank reconciliation

    Humans aren’t always perfect at punching numbers. Bank reconciliation is a way to do quality control on your books.

  5. How to manage accounts receivable

    Many businesses issue invoices, and those invoices need to be tracked. Learn how to manage accounts receivable.

  6. How to manage accounts payable

    Paying bills isn’t glamorous. But they’re debts and need to be dealt with. Let’s look at how to manage accounts payable.

  7. Creating monthly financial reports

    There are dozens of financial reports that you could create. But there are some monthly mainstays that bookkeepers love.

  8. How to do payroll

    If all you had to do was pay staff, it would be easy. But there’s more to it than that. Let’s look at how to do payroll.

  9. How to prepare tax returns

    Tax returns can be hard for small business owners. There are deadlines to make, and rules to follow. Let’s take a look.

  10. Using bookkeeping software

    Whether you do a lot of your own bookkeeping or outsource it all, software can help you save your time and budget.

  11. Using professional bookkeeping services

    If you don’t have the time or confidence to take on bookkeeping, a professional can help. Let’s look at what they do.

Download the guide on how to do bookkeeping

Learn about the eight core bookkeeping jobs, from data entry to reporting and tax prep. Fill out the form to receive the guide as a PDF.

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