Bill Paying And Cash Control Strategies That Work

Many small businesses simply pay bills when the money is available, having no real plan or strategy to assure accuracy and allow for cash controls. This is not the way to go, yet it tends to be the rule rather than the exception. Then, of course, there is the wait-for-the-cash game, which is another typical way that bills get paid in small businesses.

Yes, even paying bills requires a strategy that provides adequate opportunity for cash controls and decision-making, putting you in control of your accounts payable, not the cash flow. Here is how it works, how large corporations handle their cash control and payment strategies:

First, there must be an opportunity for the manager of the department incurring the expenditure, the person closest to creating the obligation, to accept the invoice as ready to be paid. This means he signs off on satisfaction indicating that all is correct with the invoice and the delivery of goods and services. This includes checking the price, the accurate delivery of the goods ordered and the quality, shipping charges, etc. All are areas where errors or dissatisfaction frequently occur, but the bill gets paid regardless. Before being paid, a manager must check the bill and sign off on it.

Second, why not pay bills every Monday, or even every other Monday? This may take a while to arrange with your vendors, but they will understand the need for a system and you can always blame it on the accountants and the requirements of doing business with you. It may even help to change your payment status from COD to Net 7 or Net 14; this can be worked out. During the week you cut checks but do not send them. Instead, stack them up in a pile ready to be sent out the following Monday. The previous Friday the check run is concluded and waits for a Monday order to mail. Meanwhile, all week you are building cash in your operating account, spending little and waiting for the check run to be reevaluated and for decisions to be made regarding which checks will mail on Monday.

On Monday, you evaluate the balance in your checkbook and compare it to your balance in the check run. Then, you make decisions and manage your cash by paying out the most important first until the cash runs out. Of course, the first matter is payroll. Then comes payroll taxes and shut-off notices for important utilities. Depending on the availability of cash, you then determine which of the checks must be mailed next. If your requirements are greater than cash availability, you hold the check for another week, not until Tuesday or Wednesday, but until the following Monday. You get to decide who gets paid and who does not. This is a practice you cannot do as easily (or at all) if you disburse as you go throughout the week. You may find yourself out of cash with a vitally important bill like payroll requiring payment. This gives YOU control over who gets paid and in what order and when. Hallelujah! In addition, it’s important to note that this process also allows adequate time for the managers to review invoices and accept the liability. Of course you can always make exceptions during the week, but the fewer the better.

Take control of your checkbook and you are controlling the heart of your business. Cash controls allow you to include budget controls and other systems that are all controlled by this bill paying strategy. Once utilized, you will begin to see how this supports all your systems and the general flow of effective business management and decision making.