Business Advice

Cash flow drivers #5:
Creditors

By December 10, 2021 March 18th, 2022 No Comments

This is part 5 of Ravit Insights series on the 7 Cash Flow Drivers essential for SMEs.


Image credit: Pickawood via Unsplash

Cash flow positive:  Increasing creditors can be a cash flow positive.


There’s a reason plenty of phrases around spending have become cliché.

Creditors, or accounts payable, refers to the money that you owe to others, and it can be one of the easiest to get out of control or stuck in business processes.

To keep your balance sheet in check it is essential to pay in a timely and efficient manner reflecting the payment terms offered by your suppliers or contractors.  

A lengthy approvals cycle is a big cause for missed payments in any size business.  

Missing accounts you owe mean you risk frustrating or putting suppliers offside. It is a huge problem if those are essential to you doing business. And, it could end up creating a large bill down the track when you’re not ready for it.

One company we know has an aggressive expansion plan, but the launch into a new country market has been delayed. Part of the reason? An onerous business process which meant a $5000 expense was not approved in a timely way.

This kind of issue can derail growth plans, as well as proving frustrating for the supplier and teams involved.

What are the challenges?

There are many hurdles to a smooth accounts payable process. Some of the things that can create immediate issues include:

Not taking advantage of technology

Maintaining manual records or spreadsheets makes it difficult to control costs, keep an eye on spending and ensure adequate approvals. This can lead quickly to slow invoice processing and delayed payments and the worst case scenario – lost invoices. On the flip side, manual processes can also lead to duplicated payments.

Falling behind because of manual record keeping can set off a chain reaction of negative consequences including late fees or not receiving goods.

Errors

Accounts payable teams will spend a lot of time dealing with errors including incorrect, incomplete or invoices that just don’t match. Double payments also fall into this category, an easy manual mistake to make.

Unauthorised purchases

Manual processes can make the problem of unauthorised purchases worse. This could be purchases made without an approved order, or even simple transactions on a company credit card, all of which take time for the team to process.

Fraud

Depending on your type of business you may be at risk of fraud from things including email scams which can impersonate requests for payments or hacking.

Missing invoices

If the right processes are not in place it could be easy for an invoice to go missing or slip into the cracks.

Improving accounts payable

In an era of competitive accounting software packages, ensuring you take advantage of technology and automate as much of this process as possible is essential.

Accounting software can come close to eliminating many manual handling processes, including double payments, missing invoices and late payments.

It will also provide the framework to put in place essential business processes to ensure your AP team is operating smoothly.


Check out the other cash flow drivers all business owners should understand.

Jun Yan

Jun Yan

Jun Yan is the co-founder and director at Ravit Insights. Prior to this, he was a commercial banker at NAB.

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