Jun 21, 2021 Author: Accounts Junction
Proper maintenance of the cash flow is very important for all businesses. For small businesses, cash flow makes them understand the current liquidity level and ensure smoother operation in the business. Many businesses tend to focus on the Accounts Receivable to gain more collections in the business. However, Accounts Payable is equally important for any business. It helps to streamline the bank withdrawals, purchasing orders, general ledger tracking, and many more tasks.
How does cash flow happen in business?
The cash flow in the business can vary as per the different operating styles in the business. However, there is a general direction to deal with the cash flow management of any business. There are two directions in any cash flow of the business: inflow and outflow. The cash that comes into the business is called cash inflow. Here, the activities like invoice collection, money received through sales, interest received, raising additional funds, selling capital assets, etc. are included. The cash that goes out of the business is called cash outflow. Here, the activities include paying purchases, settling debts, expenses, different types of withdrawals are done by the owner, etc. are included.
Important areas in the Accounts Payable:
1. Invoice Payment and reconciliation
In Invoice reconciliation, the outflow of the cash is matched with the bank statement. It ensures that the book entry is correct and clean.
2. Invoice recording
After the Invoice payment, the record of the debit is made in the accounts payable. It lowers the credit balance. The credit balance is more with higher accounts payable, and the credit balance is lower with low accounts payable.
3. Document management efficiently
The documents coming in various formats related to the cash flow need to be documented properly in Accounts payable. The organization of the data in the documents is a big challenge in Accounts payable.
4. Compliance (with internal policies and external regulation)
The internal policies of the organization and the external regulations for accounting keep changing. So, it is important to keep compliance with them properly in Accounts payable.
5. Reporting and Analytics
In Accounts payable, reporting and analytics are important to understand the cash flow properly. It will segregate the sources in a well-formatted way to ensure proper cash flow management.
How Accounts payable affects Cash flow management?
Generally, the current liability of the company is paid within a one-year span. However, some amount that is paid after a span of more than one year it is recorded under long-term liabilities. The increase in account payable always adds up with the net income we have taken from the company’s profit & loss, the logic behind this treatment is the credit sales occur during the financial year. Proper management of the Accounts payable helps to bring efficiency in the Cash flow management.
As cash flow management plays a vital role in the running of the business, it is important to handle accounts payable properly. It will enable to increase the cash reserves of the business nicely.
Accounts Junction provides better services for the Accounts payable that can bring efficiency in the cash flow management of the business. Accounts Junction is a well-known accounting service providing agency.
