All businesses are worried about getting paid for the products and services they provide. Especially when they're delivering the goods before receiving payment.
But what about when you're on the receiving end?
How great of a customer are you when it comes to paying off your invoices?
If you're new to business or struggle in this area, then it's essential to improve your accounts payable process.
This way, you can get your invoices paid as quickly as possible without hurting your cash flow.
Work Out Favorable Payment Terms
This is a great place to start because it helps keep your accounts payable in order. The last thing you need is a pile of unpaid invoices covering your desk.
When your payment terms are good, it allows you to pay off each invoice at times when you can afford to. Many businesses make the mistake of paying off all of their invoices at once.
While this appears to be the responsible thing to do, it can really hurt your bottom line.
Instead, you should set up your payment terms, so you don't have due dates all around the same time.
And this brings us to the first negotiation tip.
Talk to the Right People
When you're trying to negotiate the terms of your invoices, make sure you're speaking to the right individuals. You need to discuss this with those who are in a position to make these arrangements.
In most cases, your contact is a salesperson, who has no authority in this area. You'll need to get through to the COO or CFO. They know their company's finances and capabilities and will know which arrangements they can do.
They'll be in a position to take your request seriously and can make things happen.
Ask for Non-Standard Payment Period
Most vendors, suppliers, and contractors have their standard payment terms for customers. For example, they may invoice on a Net 30 arrangement.
This gives you 30 days from the invoice date to pay for your bill. If a lot of your contractors invoice on Net 30 terms, then consider asking some to go with a Net 45 or Net 60.
If you can explain why this is necessary, they'll be more likely to agree. For instance, you can show why their standard payment terms would negatively impact your business production or ability to pay.
Most companies have been in similar situations and will understand.
By improving your payment terms, you can increase the chances of being able to pay your invoices easier.
As you're negotiating your payment terms, you need to be reasonable. Your vendors have businesses to run too, so you'll need to make your offer mutually beneficial.
It wouldn't make sense to ask a vendor to go from a Net 30 to a Net 90. That's a significant jump and would likely put them in a bind they can't afford.
Plus, asking this could also hurt your relationship with the vendor. Adding 10 to 15 days to your invoice due dates is more reasonable.
Build Solid Relationships with Vendors
It's easier to negotiate the terms of your payments when you have a solid relationship built with your vendors. You want to establish trust by paying them on time.
Then if you're ever in a financial bind, you can reach out and let them know you need additional time or a renewal of your contract with new payment terms (to avoid future issues).
Having a good relationship with your vendors can benefit you in other ways as well. For example, if you ever need a quick shipment to cover an influx in sales, they'll be more willing to go out on a limb for you.
Discuss Possible Discounts
Another way to make it easier to pay your invoices on time is to negotiate discounts. You'll find some vendors will offer a discount on invoices that are paid early.
You may have to ask your vendors about this possibility, since some may not advertise it. If not, then you can inquire about getting a discount after paying a certain number of invoices in full and on time.
The last alternative is to check for discounts when ordering bulk items. Just be sure you can get the supplies off your hands if you do order products en masse.
You don't want to be overstocked with items just for the sake of a discount. Then you'd have to worry about getting a return on investment.
Opt for Paperless Invoicing
Some vendors will offer discounts for going paperless. But even if they don't, it's good to reduce your carbon footprint anyway.
Also, you'll find that digital invoices make the process easier. You can get your invoices in your email inbox quicker so you can take of it promptly.
This also eliminates the possibility of your invoices being lost in the mail. Or worse, your payments being lost in transit. If you're still using checks to pay invoices, then it's time to switch to a digital means of doing so.
With online invoicing tools like invoicely, you can pay bills using your debit card, credit card, Mollie, PayPal, Stripe, or WePay.
What's also great about online invoices is that you can set up automatic payments. This way, your invoices are always taken care of on time.
Plus, you won't have to worry about buying postage and envelopes anymore.
Standardize Your Accounts Payable Processes
How efficient is your accounts payable process? If you don't have a standardized workflow to make the process better, then it's time to create one.
With automation tools and excellent payment terms, you can make it easier on your AP department to manage all of your incoming invoices. You'll also want to go on to develop management workflows.
This will allow you to identify kinks in your workflow so you can work them out.
How to Prioritize Your Invoices
So once you have your payment terms and workflows in order, how do you go about prioritizing your invoices?
As we mentioned, you don't want to be the business that's overloaded with invoices and pays them off all at once. This will only hurt your cash flow.
Here's what you can do instead.
Accounts Payable Segmentation
The key to prioritizing your invoices is to begin with segmentation. This will allow you to focus on paying off your highest value accounts first.
These accounts are the ones that would have the biggest impact on your business if you don't pay it off on time. For instance, the vendor that's supplying 75% of your goods.
The way you go about identifying top priority invoices is to define what matters most. Which accounts can't you afford to default on?
You can make a list of the vendors you have invoices from. Organize them by company impact. How badly would it hurt your business if you paid laid and ruined your relationship?
If they're the cheapest and best quality in the industry, and supply you with a large portion of your inventory, then this is a high-priority vendor.
Streamline Your AP Review Process
How many people must an invoice go through for approval? If your AP process is extensive, then it'll slow down your invoice payments.
So to help speed things up, you should automate the process. This will quickly identify discrepancies in your invoices, eliminating the need for multiple approvals per invoice.
With automation tools, you'll hasten the entire process. Plus, it'll help reduce your expenses on paper, printing, and other office supplies.
Human error is also reduced since fewer people must handle your invoices. This means no more duplicates or misplacement of invoices. There's also no need for data entry, which can reduce the risk of fraudulent activity.
Let's not forget how costly human error and fraud can be on your business. So definitely worth the investment.
With enhanced efficiency, controls, improved cash flow planning, and savings, you'll have no problems paying your invoices on time.
Improve Your Procurement Process
It's tough to forecast and plan your cash flow when you have a chaotic procurement process. This too can be automated, so you're able to see the current standing of accounts payable.
It's vital to include a purchase order (PO) with all of your purchases so it's easier to track, manage, and connect with invoices. The PO number should be on your invoice as well.
Start Paying Your Invoices On Time
At the end of the day, invoices should be paid on time. If you can pay it right now, then great!
Invoices are a part of business so expect to send and receive them regularly. Having efficient processes in place is key to ensuring your AP process is on point.
Being a good customer will help grow business relationships and could earn you better payment terms and other deals in the future.
So give these tips a try and let us know which work for you!