Be Strategic
Too often , contractors take a reactive approach to payables , simply delaying payments as long as possible to improve short-term cash flow . However , this approach can backfire if it damages vendor relationships .
Poor vendor relationships can affect delivery times , quality of services and payment terms . A proactive , strategic approach to payables can help you strike a balance between optimizing short-term cash flow and getting along well with vendors .
It ’ s also critical to explore the potential benefits of early payment discounts , volume discounts or other incentives that can improve your cash flow and bottom line . That ’ s not to say you should accept every available discount . Whether you should do so depends on whether your cash flow is strong enough so the payments and benefits of the discount truly outweigh the costs .
Strengthen Selection and Review
Implement policies , procedures and systems to ensure you properly vet vendors and negotiate the best possible prices and payment terms . Create preferred vendor lists so staff members follow established procedures and don ’ t engage in “ maverick ” buying ( that is , buying from unauthorized vendors ).
It ’ s also important to review vendor contracts regularly and maintain a database of key contractual terms that ’ s readily accessible to everyone . With an understanding of payment terms and other important contractual provisions , employees can double check vendor compliance and avoid errors ( or fraud ) that can result in overpayments or duplicate payments .
Leverage Technology
Automating the accounts payable process offers many benefits . For one thing , an automated , paperless system can significantly increase efficiency , reduce costs and shorten the time it takes to process invoices .
And , of course , the ability to pay invoices more quickly makes it easier to take advantage of available discounts .
In addition , automation can provide greater visibility of payables and better control over payments . For example , cloud-based systems provide immediate access to account information , allowing you to review and approve invoices from anywhere at any time . The best automated systems also contain security controls that help prevent and detect fraud and errors .
Naturally , there ’ s an upfront cost to buying good accounts payable software and training your staff to use it . You ’ ll need to find a solution that suits your construction company ’ s size , needs and technological sophistication . You ’ ll also incur ongoing costs to maintain the system and keep it updated .
Pay Attention to Payables
Don ’ t underestimate the impact of accounts payable on your financial performance . A proactive , strategic approach to payables management can help your construction business improve its cash flow and profitability . Consider paying certain vendors with a credit card which would provide your company an additional 30 days to pay the invoice and help with cash flow .
Rely on our construction CPAs to assist in developing accounts payable strategies specific for your business and designed to boost cash flow . ■
Issue 1 | 2021 VIEWpoint 5