Cash flow best practices

How you manage your payables can have a significant impact on your cash flow and business relationships. Whether paying for your mortgage, rent, equipment, inventory, payroll or other expenses, thoughtful planning and predictability are key to ensuring you have cash available to meet your immediate and longer-term needs.

Over 40% of small businesses struggle with cash flow.

The WePay SMB
(Small and Midsize Businesses)
& Money Survey shows that
just in the last year:

41% of businesses report cash flow challenges. 16% of businesses report payment fraud

Statistics provided by WePay, 2017.

Basic guidelines for managing payables:

  • Log the source, sum and date of all cash outflows to assess where your money is going and how often.

  • Note monthly and quarterly patterns, seasonal trends and other recurring spending behaviors.

  • Set up a reporting system that you update regularly to track outgoing cash flow and to plan ahead.

  • Review suppliers and expenses regularly to find opportunities to lower costs.

  • Set expense budgets for your employees.

  • Use a credit card for expenses to extend payment terms.

Find the right vendors and work with them.

A good working relationship with your vendors can help with business cash flow management, terms, pricing and more.

  • Establish good communications.

    Let your suppliers know your general product and service needs. Trust and understanding are mutually beneficial.

  • Consider early payments.

    When cash flow isn’t an issue, take advantage of vendors who offer discounts, such as a 2% savings for net 10 payments.

  • Seek out vendors who will work with you.

    When cash is tight, some will extend payment due dates without a penalty.

  • Focus on more than price.

    Having strong relationships with creditors and suppliers can result in flexible payment terms and other benefits that go beyond pricing.

Set payment terms.

Stay organized and optimize your payment schedule.

  • Keep your receipts and invoices in one central place.

    As payables come in, record them in a ledger, preferably using accounting software like QuickBooks®.

  • Be strategic.

    Take full advantage of creditor terms by determining when payments are due — such as net 30, 60 or 90. Electronic payment methods can save time and ensure accuracy. By analyzing your accounts payable and spreading payments out, you can keep cash in your business longer and enhance overall cash flow.

  • Maintain current cash flow forecasts.

    This will help you make informed decisions about timing payments throughout the month.

  • Reconcile accounts often, even daily.

    Correcting errors and duplicate entries will help avoid overpayments and smooth out cash flow. An automated accounts payable process or software is recommended.

Double-check your invoices.

Match invoices against purchase orders before processing payments. Also, keep a running list of invoice disputes and resolutions. Note any repeating patterns from invoice to invoice. If the same vendor is involved, you can work together to resolve the issue.

80% of organizations lose up to 2% in duplicate payments annually

Statistic derived from Institute of Finance and Management IOFM Benchmark studies, February 2016.

Request a W-9 from every vendor.

Before their first invoice is paid, every new vendor should supply a W-9 form. The IRS requires it, mainly to establish a paper trail, and it gives you all the legal contact information you need to establish a business relationship. This may also protect you from illegitimate vendor expenses.

Control who authorizes purchases.

As a business owner, you need to protect your interests. While most small businesses do not have a formal purchase order system, there must still be some procedure for employees to follow that monitors and manages the authorization of purchases.

  • Do your due diligence.

    Choosing the right employee(s) for specific accounts payable duties is important to maintaining control of which vendors are approved and when invoices are to be paid.

  • Maintain checks and balances.

    If possible, it’s best to have more than one individual in charge of payables. Separate the responsibilities for preparing invoices and processing payments — whether this involves a bookkeeper, multiple employees or yourself — to discourage theft.

Pay commissions and bonuses when you have the funds.

A safe practice is to defer paying sales commissions until you’ve received payment from the customer. Similarly, it’s better to pay bonuses during a time of the year when cash balances are typically high.

Payables management solutions

There are many new and established solutions available to help you with your accounts payable. These include expediting your outgoing cash flow, planning and forecasting your payments, and streamlining your payroll process. (Contact a Small Business Specialist to discuss the options that would work best for your business.)

Electronic payments

While writing, printing and mailing checks can be a time-consuming drain on your resources, electronic payment solutions — such as Automated Clearing House (ACH), Electronic Funds Transfer (EFT) and Online Banking — can provide greater speed, reliability and convenience. As a result, your business can benefit from:

  • Lower costs

    ACH and EFT services deliver payments at a fraction of the cost of paper check processing.

  • Increased security

    Automatic and electronic debits are more secure and minimize human risk, mishandling and error.

  • Added convenience

    Electronic payments only need to be authorized once and will then be automatically deposited into a vendor’s designated bank account going forward.

Automated employee payroll

If you have employees, implementing an automated payroll disbursement system can save time and money, and help you fulfill your ever-changing legal and regulatory responsibilities as an employer.

  • Direct deposit

    This can help eliminate check issuance and processing expenses, streamline reporting, facilitate managing funds from your desktop and save your employees time.

  • Employee payroll cards

    Similar to debit cards, you can simply make an ACH direct deposit to each employee’s payroll card, giving them easy access to their funds at ATMs, bank teller windows and merchants worldwide.

  • Automated employee compensation solutions

    Whether you’re tracking employee hours or paying overtime, managing health plan premiums or funding 401(k)s, automating these tasks can save you a lot of time and effort.

Employ business credit cards

Using business credit cards and timing your purchases correctly can help enhance cash flow. Issuer promotions can also provide many months of interest-free purchases and upfront cash benefits. Cards that offer cash back or travel rewards can be especially beneficial.

Maintain control with cash flow management

With Business Advantage 3601 from Bank of America, you can get a 360-degree view of your business finances with a cash flow management dashboard. Since it’s fully integrated into your digital experience, you can organize your account activity to help categorize and track debits and credits, major expenses and key transactions, all in one place. You can also set cash flow thresholds and alerts to make proactive adjustments.

You must be enrolled in Online Banking or Mobile Banking to use the Business Advantage 360 tool and have an eligible Bank of America® small business deposit account. Mobile Banking requires that you download the Mobile Banking app and is only available for select mobile devices. Message and data rates may apply.

Bank of America, N.A. provides informational materials for your discussion or review purposes only. Consult your financial, legal and accounting advisors, as neither Bank of America, its affiliates, nor their employees provide legal, accounting and tax advice.

Bank of America, N.A. Member FDIC. ©2019 Bank of America Corporation  ARL6TTYG  |  08/2019

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