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• 05 Sep

  How To Manage Payables

  

  Explaining how to manage payables needs to start with a definition of what "payables" are. For the purpose of this article, we have referred to this subject in the context of running a business.

  What Are Payables

  Payables are amounts that are payable by your business to other parties. These are liabilities that your business owes to other parties. They could include amounts that you owe to suppliers (trade credit) for raw materials or finished goods. Similarly, you could include other expenses in the amounts payable to 3rd parties such as taxes, premises costs or other expenses and expenditure.

  The Difference Between Receivables And Payables

  The key difference between receivables and payables is that receivables, amounts receivable, are owed to your business by your customers. Conversely, payables, or accounts payable are the amounts that you owe to other businesses (your suppliers). Having said this, people often confuse the two terms and regularly talk about payables being their outstanding sales invoices. From the perspective of your customers, the amounts owed by them to your business (your receivables) are in fact their accounts payable!

  How To Manage Payables

  Turning to the question of how to manage your payables, it is essential for any business to meet the payment of its creditors in a timely fashion. A business that can't meet this test is illiquid and may even be insolvent if there is no way to improve its liquidity. In the case of insolvency, advice should be sought from a licenced insolvency practitioner. If the issue is one of liquidity, there may be other solutions available.

  Anyway, good creditor management requires a number of aspects to be addressed.

  You might also want to see this article about the subject of Payables Management.

  Tracking Your Accounts Payable

  Firstly, the business needs to have a good system in place in order to ensure that it understands when its liabilities are going to fall due, and the amount that needs to be paid. Also, it will need to track the payments and record the history of transactions. Additionally, the company will need to have full details of how to make these payments.

  This usually requires some form of accounting system to manage these liabilities. Typically, a company will have some form of electronic accounting package that will handle this function. Indeed, there are now requirements for businesses to have electronic accounting systems to comply with the requirements of HMRC.

  Cash To Pay Your Liabilities As They Fall Due

  Secondly, the business needs to have sufficient cash flow in order to be able to pay its creditors as and when necessary. Maintaining enough cash requires that the business is receiving sufficient income from sales in order to meet its liabilities as and when they fall due. See our guide to cash flow management.

  Raising Additional Funding

  If this is not the case, and the company is short of money, there are options such as accessing additional borrowing. That may be helpful in meeting liabilities. This could be in the form of an overdraft or a commercial loan.

  Alternatively, there are various forms of receivables financing that allow a business to release the money that's tied up in amounts that are owed to them by their debtors. This is commonly called invoice financing.

  Efficient Management Of Your Accounts Payable

  In summary, in order to efficiently manage its payables, a business needs both an effective system to track the amounts payable and it needs sufficient cash on hand in order to meet its liabilities as they fall due. If your business has issues, raising sufficient money to meet its liabilities, FundInvoice may be able to assist you by arranging some form of business, financing or receivables financing to improve your cash flow situation.

  Further information may be obtained by reading our cash flow guide noted above, and we have also produced an extensive guide to managing your receivables.

  By Glenn Blackman