By properly managing accounts, it becomes easier to maintain positive cash flow so that the business can grow sustainably.
With this in mind, we have prepared this content on how the accounts payable and receivable department works and its importance. By reading this, you will also receive practical tips for managing accounts payable and receivable in your business.
What are a company’s accounts payable and receivable?
Accounts payable and receivable represent amounts that the company has to pay and receive from third parties, respectively.
Accounts payable
A business’s accounts payable includes financial obligations owed to third parties. This includes suppliers, government agencies, service providers, among others.
Therefore, examples of accounts payable in a company are:
- Supplier invoices for goods, products and supplies;
- Payments to service providers;
- Employee salaries and benefits, and partners’ pro-labore;
- Utility bills (energy, water, internet, etc.);
- Loan payments, interest and bank fees;
- Municipal, state and federal taxes;
- Equipment maintenance;
- Insurance.
Accounts receivable
Accounts receivable include amounts that third parties must pay to the company. Here are some examples:
- Installment sales (made with a credit card or installment payment slip , for example);
- Subscriptions (in businesses with recurring revenue);
- Promissory notes;
- Rentals of properties owned by the company;
- Redemptions of financial applications;
- Taxes to be refunded.
What is the relationship between cash flow and accounts payable and receivable?
Cash flow represents the inflows and outflows of money from the company’s cash register, in short.
Therefore, when the company has resources to honor its commitments on time, we say that the cash flow is positive.
And to maintain positive cash flow, it is necessary to have alignment between the terms of accounts payable and receivable.
When the term of accounts payable is shorter than that of accounts receivable, a cash flow mismatch occurs . This mismatch leads to additional expenses with fines and interest.
Therefore, when the company has efficient management of payables and receivables, the alignment of deadlines prevents a lack of cash resources.
In other words, the probability of having cash in hand to pay the business’s commitments on time is greater.
What does the company’s accounts payable and receivable department do?
The most common is for a single sector to be responsible for managing the business’s accounts payable and receivable.
However, larger companies may have separate departments: accounts payable and accounts receivable.
On the other hand, smaller businesses may have only one finance department (which may even be made up of just one person). In this case, the finance department takes care of payables and receivables.
Among the main functions of accounts payable, we have:
- Cash flow management : organize and control the payment schedule for business obligations to maintain positive cash flow;
- Reconciliation : check the values of the outgoing payments, cross-referencing the data with the statement of the corporate account and/or corporate credit card ;
- Report generation : prepare reports that help management optimize the use of the company’s financial resources;
- Fraud prevention : identify fraud related to accounts payable (e.g. fake bills);
- Negotiation with suppliers : negotiate terms and conditions to maintain positive cash flow.
Accounts Receivable Functions
Even though there is only one department responsible for managing payables and receivables, the following are specific functions of accounts receivable:
- Issuing invoices : the sector is responsible for issuing invoices and payment slips for installment sales;
- Receipt control : check compliance with deadlines agreed with customers, identifying delays and defaults;
- Prevention and combating of default : implement actions to avoid delays in payments and optimize the collection of defaulting customers;
- Projections : using accounts receivable data, the sector can make estimates to support corporate financial planning ;
- Credit policy : establish guidelines for granting credit to customers;
- Reconciliation of receipts : reconcile invoiced and actual received amounts, keeping financial records up to date.
5 tips for keeping track of your accounts due and receivable
Structuring the accounts payable and receivable sector can seem complex, especially when the company is just starting out and has a small team.
With this in mind, we have prepared some tips for managing this strategic area:
1. Have a bills payable schedule
Having a schedule of accounts payable is a basic step to avoid fines, interest and other penalties for late payments. Here, the flow of payments should be organized by deadlines.
2. Make advance payments strategically
Some obligations offer discounts when paid in advance or in cash. This may apply to suppliers and taxes, for example.
Therefore, account management can use this strategy to reduce costs, as long as it does not harm cash flow.
3. Negotiate with defaulting customers
Making it easier to pay off debts is a strategy for the accounts receivable sector to reduce default.
In this sense, special conditions may include discounts for cash payments, interest reductions and installment payments.
4. Align deadlines
It is worth emphasizing that it is necessary to have an alignment between the terms of accounts payable and receivable to maintain positive cash flow.
As we have seen, a mismatch between these deadlines results in a lack of resources to pay off obligations on time.
5. Use technology to optimize processes
There are tools to automate tasks such as issuing bills, controlling receipts and sending collection notifications , among others. With them, you can use technology to increase accounts payable and receivable productivity.