“I started my own business because I love handling accounts payable,” said no one ever (except maybe accountants). Most of us set out on an independent career path because we have a passion for our field of choice and want to focus on improving our skills and growing our business, not paying the bills. To business owners, accounts payable remain an unpleasant chore that comes with following their dreams. It’s like doing the dishes after dinner—nobody wants to do it, but everyone has to.
When done right, managing accounts payable can mean a healthier cash flow, better relationships with vendors, and ultimately, better payment terms. AP mistakes, on the other hand, can cost your business fees and penalties and put you at risk of fraud or theft.
While hiring someone else to manage accounts payable is one possible solution, it’s not always feasible, especially for smaller businesses. Fortunately, as payment technologies evolve, there are digital AP tools out there that can take a serious load off your shoulders.
Tech finds a way
Accounts payable take up a lot of time, and they are error-prone and stressful. Using an online tool to manage them can eliminate some of the main challenges associated with this task, while also:
- Improving your cash flow
- Saving you time and money
- Keeping your information safe and secure
Below are seven ways an online AP service can help your business.
How online accounts payable tools help lighten the load
Visibility and trackability
Businesses and bills go together like a toddler and fingerpaints—if you’re not careful, you’ll be cleaning that mess for a while. The good news is that when you use an online tool to manage your accounts payable, you get to see all your payments in one dashboard. This makes it so much easier to stay in control, keep track of funds coming out, check the status of every single payment, and edit or cancel as needed.
It gets even better if you use the same tool for accounts receivable. This way, you can plan ahead without losing sight of your business’s cash reserves, as you know exactly how much money is coming in and out of your account.
When it comes to paying your business bills, it’s all about timing. While paying early and getting it out of the way may sound like the responsible thing to do, it puts you at risk of depleting your business’s cash reserves and hurting its cash flow.
Putting off payments to the last minute, however, may also not be the best approach. Unexpected situations like illness or just a flimsy memory are likely to result in late payments. These, in turn, can damage the relationships with vendors you worked so hard to build, incur fines, or, in some cases, even lead to legal action.
So, what can you do? Use a digital accounts payable tool, like Melio, to schedule all your payments in advance. This way, each payment goes out at precisely the right time, not a minute too soon or too late, saving you money and headaches. You’ll also be saving time as you can handle all your payments for the month or the week in a single sitting.
Scheduling helps in terms of cash flow planning as well, since you can see all payments—past, present, and future—in the same place and know when you’re good to go and when you need to stream in more funds ASAP.
Payment approval workflows
Being surprised every once in a while—for example, by an old friend who is suddenly in town or by a bunch of people standing in your living room in the dark on your birthday—can be refreshing. When it comes to funds coming out of your account, however, nobody likes surprises.
If you’re not the only one handling the bills for your business, a lack of communication or a simple misunderstanding could mean a bill is paid too early, draining your account.
Imagine you’re planning a big event for customers at the end of the month. You expect to cover the expenses with the revenue it generates and pay for all the equipment you rented in a few weeks—after the event but before the bill is due. A diligent yet uninformed employee might decide to take the initiative and pay the bill early. This could seriously hamper your business’s cash flow and have a negative effect on the success of the event.
A digital accounts payable tool can prevent such scenarios if you implement payment approval workflows. With such tools, you can assign roles to different people in your operation and set thresholds for payments requiring your authorization. This way, you can delegate without losing control over your finances.
Like bills, costs, especially small ones, tend to pile up. Data collected by enterprise information management company Iron Mountain suggests the cost of the non-digital processing of each paper invoice could be anywhere between $5 and $25. This means that if your business has 30 bills to process a month, it could be spending as much as $750 a month (or $9,000 a year) just on paying the bills.
By using a digital tool to manage accounts payable, you’ll save on several seemingly minor and unrelated fronts that really add up:
- Physical goods: A digital tool eliminates the need to mail out physical checks and invoices. So, you will no longer have to purchase paper checks, envelopes, stamps, printing paper, printer ink, or toners for your bill pay needs.
- Transactional fees: If you currently use your bank to transfer funds to your vendors, you’re likely paying $10-$25 per transaction. All the while, some online accounts payable tools, like Melio, charge no monthly subscriptions or fees for ACH transfers.
Even credit card transactions tend to be cheaper on digital AP tools, so you’ll be better off, regardless of how you choose to pay.
- Staff hours: Let’s put the cards on the table, your team—whether it’s two people or 50—is getting paid to maximize your business’s growth and potential, not to partake in payment-related busywork. Digital accounts payable tools save you and your staff hours every month, so you can focus on what really matters for your business.
Flexibility for both parties
Everyone has their own way of doing things, and they’re usually very emotional about it. Consider the last time you had a heartfelt debate on the best way to eat a particular creme-filled sandwich cookie, and you’ll know exactly what we mean.
Whether you’re a twist-lick-dunk person or you swear by the fork-dipping system, you can likely appreciate another subject people tend to get emotional about: payments and how they are made.
If your vendor is used to getting paid by check, for example, you’d be hard-pressed to convince them to receive a bank transfer or credit card.
Still, sometimes you need the extra flexibility and float of a credit card payment or the convenience of a digital bank transfer. So, you’ll be happy to hear some online accounts payable tools (you guessed it, including Melio) let you choose how you want to pay without affecting how your vendor gets their money.
This means that you can pay with a credit card even if your vendor doesn’t accept cards—they still get a check or a bank transfer—whichever they prefer. The best part? They don’t even need to sign up or do anything else in order to get paid—they can just stick to their tried and true workflows.
Credit card perks
If we’re already on the subject, paying with a credit card where cards are generally not accepted is not just a matter of convenience. It can actually help your business by:
- Generating card rewards and perks: Paying with a credit card for large business expenses, such as rent or utilities, means you get to collect rewards, cashback, points, and other card perks on payments you usually couldn’t cover by card.
- Improving your cash flow: Just because you’re low on cash at the moment doesn’t mean your bills aren’t due. Paying with a card allows you to settle the bill now and defer the payment until your next billing cycle, providing some extra float.
Unlike cash or paper checks, digital payments leave a clear trail and cannot get lost or stolen on the way. Both you and your vendors get payment confirmations as soon as the money goes out of your account. And, you can always check the payment’s details or status and make changes if needed.
What’s more, online payment services use state-of-the-art security protocols and encryption tools a small business cannot afford to develop independently. These technologies ensure your private information stays private and help minimize risks of fraud and abuse.
Find a digital accounts payable tool that works for you
Running a business is hard enough without having to manually handle accounts payable and send out checks. Instead of struggling with outdated processes, you should start managing your accounts payable online.
Melio is a free and straightforward solution tailored to fit the needs of small and medium-sized businesses like your own. So, why not give it a try today?
*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.