Properly managing Accounts Payable (AP; money going out of your business) and Accounts Receivable (AR; money due in) are key to maintaining positive cash flow in your small business.
Cash flow is important, as without it you won’t have the funds on hand day-to-day to pay vendors and cover everyday essentials. It’s not the same as profit, and in fact, businesses that show a paper profit can go bust if invoices aren’t paid on time and there is no cash in the business to pay bills.
That’s why regularly reviewing your AP and AR will give you a bird’s-eye view of what is going on in your business, so you’ll be able to plug any gaps before they become an issue.
With this in mind, here are 3 regular habits you can adopt to help:
1. Pay obligations on time (and maintain good vendor relationships)
While it’s really important that you get your invoices paid on time and know when they are due, it’s also important to know all your obligations and due dates so you can pay on time.
These obligations can include subscriptions, vendor invoices, loan payments, etc., to name just a few. Paying on time means on the due date, not before. A good rule of thumb is only to pay early if there is an early payment discount you can take advantage of and it benefits you. For example, there may be an early payment discount on offer, but you might not have the wherewithal to take advantage of it. For long-term obligations, it makes sense to negotiate longer payment terms and ask for discounts.
Paying your Accounts Payable strategically so they work for you adds up financially over time and can also help maintain good vendor relationships.
Good vendor relationships can be handy on occasions when cash might be tight. If you’ve always paid on time and avoided late payments, this will go a long way toward building flexibility and trust should you need it.
2. Know when invoices are due (and follow up)
The last thing you want to be doing is spending inordinate amounts of time (and therefore money) chasing up late payments or unpaid invoices. That’s why it’s important to set clear payment terms and conditions upfront and in writing.
Your client should know when invoices are due and any late payment charges you may apply if they are not paid on time. You also need to make sure your invoices are sent out on time, without delay. This is usually when work is complete, or the product is delivered, but it can be earlier, depending on the project and your payment terms and conditions. For example, you might require payment up front before you commence work.
When it comes to reducing the risk of an invoice being paid late, a friendly reminder before the due date can help. With Invoice Ninja, you can set automatic reminders to be sent before, on, or after the due date, or set endless reminders.
You can set up recurring billing for regular clients and apply late payment fees if applicable as a percentage or a flat fee.
You can also run regular reports, such as your Accounts Receivable Aging Report, so you know exactly how much is owed to you, by whom, and when. On top of this, you can configure your dashboard so you can easily see what’s outstanding at a glance. Watch our short video here to take you through the setup.
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3. Track all your billable hours (and invoice accordingly)
When dealing with multiple projects, it can be easy to lose track of how much time you’ve spent on each. That’s why it makes sense to track all your billable hours to ensure you are getting paid for all time spent on a project so you can invoice accordingly. Making it a habit to track your billable hours accurately is key to getting paid correctly.
Fortunately, the Invoice Ninja task time-tracking feature allows you to record every second spent on each task accurately. When you’re done with a task, click and send all your work time to an invoice instantly. No manual data entry needed!
You can create projects, organize tasks within them, and track billable time for each task.
You can also integrate your Google/Microsoft calendar directly into Invoice Ninja, so you can start logging time from your calendar events.
Now you’ll have complete clarity on where your hours actually go – and can invoice accordingly!
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