ACCOUNTS PAYABLE

Accounts payable is the term used to describe the
amounts owed by a company to its creditors. It is,
along with accounts receivable, a major component of
a business’s cash flow. Aside from materials and
supplies from outside vendors, accounts payable
might include such expenses as taxes, insurance, rent
(or mortgage) payments, utilities, and loan payments
and interest.

For many small businesses, the significance of
every overdue payment can often be greatly magnified.
For this reason, it is absolutely essential for
entrepreneurs and small business owners to deal with
the accounts payable side of the business ledger in an
effective manner. Bills that are unpaid or addressed in
a less than timely manner can snowball into major
credit problems, which can easily cripple a business’s
ability to function.
By making informed projections and sensible
provisions in advance, the small business can head off
many credit problems before they get too big. Obligations
to creditors, ideally, should be paid off concurrently
with the collections of accounts receivable.
Payment checks should also be dated no earlier than
when the bills are actually due. In addition, many
small companies will find that their business fortunes
will take on a cyclical character, and they will need to
plan for accounts payable obligations accordingly.
For instance, a small grocery store that is located near
a major factory or mill may experience surges in customer
traffic in the day or two immediately following
the days in which paychecks are disbursed at that
facility. Conversely, the store may see a measurable
drop in customer traffic during weeks in which the
factory or mill is not distributing paychecks to employees.
The canny shop owner will learn to recognize
these trends and address the accounts payable portion
of his or her business accordingly.
Generally, not all bills will need to be paid at
once. Expenses such as payroll, federal, and local
taxes, loan installment payments, and obligations to
vendors will, in all likelihood, be due at various times
of the month, and some—such as taxes—may only be
due on a quarterly or annual basis (tax payments
should always be made on schedule, even if it means
delaying payment to vendors; it is far better to dispute
a tax bill after it’s been paid than to run the risk of
being charged with costly fines). It is important, then,
for small business owners to prioritize their accounts
payable obligations.