Accounts Payable & E-commerce
Accounts payable play a critical role in the success of your business, particularly if you operate an online venture. If you’re currently managing an e-commerce business, here are 3 crucial points to keep in mind:
1. Account payables are amounts owed by a business to vendors and suppliers for goods and services received.
2. Managing accounts payable is crucial for e-commerce businesses to
- Maintain supplier relationships
- Avoid late payment fees
- Improve financial health
- Manage cash flow
- Manage risk
3. Best practices for improving accounts payable processes in e-commerce include:
- Implementing accounts payable system
- Establishing payment terms
- Monitoring invoices and payments
- Using electronic payments
- Reconciling accounts payable regularly.
In this blog, you’ll discover what accounts payable are, explore their intricate relationship with e-commerce, and unlock a treasure trove of actionable strategies specifically designed for you, the savvy e-commerce owner. Prepare to transform your business!
What are accounts payable?
Accounts payable are the amounts owed by a business to its vendors, suppliers, and other entities for goods and services received. These amounts are recorded as liabilities on the business’s balance sheet until they are paid. Accounts payable can include invoices for inventory, rent, utilities, and other expenses related to the business’s operations.
Accounts Payable is like keeping track of IOUs ( «I Owe You.”) in your business. When you buy goods or services from vendors or suppliers, they give you an invoice for what you owe. These invoices are your Accounts Payable. It’s the money you owe to others. It’s important to manage your Accounts Payable because you need to keep good relationships with your suppliers and avoid late payment fees.
Why is managing accounts payable important for e-commerce?
Managing accounts payable is crucial for e-commerce businesses for several reasons.
- Improve financial health: Efficient management of accounts payable contributes to the overall financial health of an e-commerce business. It helps maintain accurate financial records, prevents overpayment or duplicate payments, and ensures proper cash flow management. By optimizing accounts payable processes, businesses can allocate resources effectively, make informed financial decisions, and have a clearer picture of their financial position.
- Cash flow management: Accounts payable management plays a crucial role in cash flow management. It involves carefully planning and scheduling payments to ensure that there are sufficient funds available to cover expenses without causing cash flow shortages. Effective management helps businesses maintain liquidity, meet financial obligations on time, and reduce the risk of cash flow disruptions that can impact day-to-day operations.
- Maintain supplier relationships: Effective management of accounts payable helps build and maintain positive relationships with suppliers. Timely and accurate payments demonstrate reliability and trustworthiness, which can lead to favorable terms, discounts, and priority service from suppliers. Strong supplier relationships are essential for securing reliable inventory, obtaining competitive pricing, and ensuring smooth business operations.
- Avoid late payment fees: Timely payment of invoices is crucial to avoid incurring late payment fees or penalties. Late payments can strain relationships with suppliers and may result in disruptions to the supply chain or even the suspension of services. By managing accounts payable effectively, e-commerce businesses can avoid unnecessary costs and maintain a positive financial standing.
- Risk management: Proper management of accounts payable helps mitigate risks associated with fraud, errors, and compliance issues. Implementing controls, such as segregation of duties and thorough invoice verification processes, reduces the risk of fraudulent activities or payment errors. Compliance with legal and regulatory requirements is also crucial to avoid penalties and maintain a good business reputation.
So, as an e-commerce owner: What can you do to improve your account payables?
Now that we understand the importance of managing accounts payable, let’s discuss some best practices that e-commerce businesses can follow to improve their accounts payable processes.
The first step in managing accounts payable is to implement an accounts payable system. This system should include a process for receiving and reviewing invoices, approving payments, and recording transactions. The system should also include a way to track payments and monitor outstanding balances. There are several software solutions available that can help you manage your accounts payable, such as QuickBooks, Xero, Zoho Books, and Dost. These solutions can automate many of the accounts payable processes and provide real-time visibility into your payables.
Establishing payment terms with your suppliers and vendors is crucial for managing accounts payable. Payment terms should be agreed upon before any transactions take place and should be included in the purchase order or contract. Common payment terms include net 30, net 60, and net 90, which means that payment is due 30, 60, or 90 days after the invoice date. It’s important to choose payment terms that align with your cash flow and ensure that you have enough funds to pay your bills on time.
Monitoring invoices and payments is essential for managing accounts payable. You should review invoices as soon as they are received to ensure that they are accurate and match the purchase order or contract. Any discrepancies or errors should be addressed with the supplier or vendor immediately. You should also monitor payments to ensure that they are made on time. Late payments can damage your relationships with suppliers and vendors and result in penalties and fees.
Using electronic payments, such as ACH transfers and credit card payments, can improve your accounts payable processes. Electronic payments are faster and more secure than paper checks and can help you avoid late payment fees. Electronic payments can also be automated, which can save time and improve accuracy.
Reconciling accounts payable is essential for maintaining accurate financial records. Reconciling involves comparing your accounts payable balances to your supplier and vendor statements to ensure they match. Reconciling can help you identify any discrepancies or errors in your accounts payable and ensure that your financial records are accurate. It’s important to reconcile your accounts payable on a regular basis, such as monthly or quarterly. (matching process → this can be connected with some blog/content on Dost functionalities).
Attention E-commerce Owners: Unleash the Power of Account Payables Management!
Managing accounts payable is essential for e-commerce businesses. Proper management of accounts payable can help maintain good relationships with suppliers and vendors, avoid late payment fees, and improve overall financial health. By implementing an account payables system, establishing payment terms, monitoring invoices and payments, automating accounts payable processes, using electronic payments, and reconciling accounts payable, e-commerce businesses can improve their accounts payable processes and achieve financial success.
So, what are you waiting for? Now that you know how to improve your e-commerce business: go for it!
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