Strategies for Managing Accounts Payable Delinquencies

Introduction

Accounts payable delinquencies are an unavoidable circumstance that can take up a considerable amount of time for business owners and their accounting teams. Unpaid invoices can cause cash flow issues and can lead to bigger problems down the road. Thankfully, there are a number of strategies business owners can use to manage accounts payable delinquencies and mitigate the potential damage.

In this blog post, we will explore some of the best practices and strategies to help businesses manage their accounts payable delinquencies, such as identifying and addressing late payments, instituting an effective payment term policy, and improving communication with vendors.

Assess Your Own Exposure

Managing accounts payable delinquencies must start with a good assessment of how much exposure your organization has. This begins by recognizing two key aspects: the size of the delinquency and the impact of late payments.

Considering the Size of the Delinquency

The size of the delinquency will dictate your next steps in managing the outstanding invoice. A small balance can often be quickly rectified with a phone call or simple negotiation. Meanwhile, a large balance may require extensive back-and-forth between accounts to determine the invoice's validity. Knowing your exposure also helps you prioritize with multiple invoices: focus on the most delinquent and larger balances, and work your way down.

Understanding the Impact of Late Payments

Late payments can have a drastic impact on your business. Delinquency can cause a vendor to blacklist you and cut off supply. Furthermore, multiple late payments may cause the vendor to sue for their lost revenue. Having a good understanding of the owner's exposure gives them enough information to protect themselves and their business.

Analyzing your accounts payable delinquencies helps you plan ahead and accurately assess your finances and liabilities. By considering the size of the delinquency and understanding the impact of late payments, you can recognize the risks your business may face and accordingly adjust your strategy for managing accounts payable delinquencies.

Establish Clear Policies

To ensure proper accounts payable management and to manage delinquencies, it is important to establish clear policies. These policies need to be communicated to all vendors to ensure that they understand the business’s expectations and terms.

Creating an Agreement with Vendors

Creating an agreement with vendors is one of the most important steps in developing policies for accounts payable management. The agreement should include detailed information about payment terms, including when payment will be due, any penalty for late payment, and any discounts for early payment. This agreement needs to be signed by both parties to ensure it is legally binding.

Enforcing Payment Deadlines

It is also important to create policies for enforcing payment deadlines. This could include sending reminders for payment prior to the due date, charging interest on late payments, or providing discounts for early payment. Additionally, it may be necessary to take legal action against those who are chronically late in paying their bills.

• Send payment reminders prior to due date.
• Charge interest on late payments.
• Provide discounts for early payment.
• Take legal action against chronic late payments.

Improve Credit Monitoring

Improving credit monitoring can help businesses stay on top of accounts payable delinquencies, making it easier to identify and address issues early on. There are two key strategies businesses can use to improve their credit monitoring processes.

Tracking Customer Credit Worthiness

One important step is for businesses to regularly track customer credit worthiness. By understanding the credit standings of their customers, businesses can better predict which customers are likely to pay on time, and which customers may be more volatile or at risk of making late payments. An easy way to keep track of credit worthiness is to use credit scoring software or services, which can quickly produce a numerical score useful in assessing a customer’s credit worthiness.

Using Automated Tools to Issue Credit Warnings

Another strategy businesses can use to improve credit monitoring is to set up automated tools to issue warnings. For example, automated emails can be sent to customers when an invoice is due, reminding them to make a payment. Automated text messages can also be sent to remind customers of payment deadlines. Similarly, automated voice calls can be set up to contact customers when a payment is overdue, to ensure payments are made as soon as possible. Automated tools can be a powerful way to help reduce delinquencies and ensure accounts payable processes run smoothly.

Streamline Payables Process

Improving the accounts payable process is an essential step for any business. As most companies would attest, late payments or defaults can be incredibly damaging to the entire organization. This is why it is essential that all organizations take measures to effectively streamline their payables process.

Automating Accounts Payable

Automation is increasingly becoming integral for streamlining payables processes. By automating manual tasks, organizations are able to ensure that all payments are sent on time and without errors. Automation also helps to reduce the time required for processing payments, saving organizations time and resources. Some of the common automated functions include a notification system to remind staff of upcoming payments, automated payments, an online/digital billing system, and reminders/alerts when payments are due.

Conducting Regular Department Reviews

Organizations should also conduct regular reviews of the accounts payable department to identify any inefficiencies or areas that can be improved. The review should include an assessment of current processes and procedures, staff training needs, and any technology upgrades that can help improve the efficiency of the accounts payable process. Regular reviews also ensure that any changes needed for the efficient running of the accounts payable process are implemented in a timely manner.

By taking these steps to streamline the payables process, organizations can ensure that their accounts payable processes are running smoothly and that any delinquent accounts can be addressed efficiently.

Leverage Outside Experts

Having a sound strategy for managing your accounts payable delinquencies is essential in maintaining your business’s financial health. One way to ensure that you are taking the right steps is to leverage the expertise of outside professionals and organizations. There are a variety of options available that can be used to help reduce and manage your accounts payable delinquencies.

Consulting Third-Party Professionals

Consulting with a third-party professional can provide valuable insight into the best strategies for managing accounts payable delinquencies. This can include working with experienced individuals in the field of finance or law who have a thorough understanding of accounts receivable and debt collection processes. Working with third-party professionals can help you to identify underlying issues and create workable solutions for your business.

Using Collections Services To Pursue Debt

When considering how to pursue accounts payable delinquencies, using collections services can be a powerful tool. This includes services like commercial collection agencies or debt buyers, who specialize in helping businesses recover outstanding payments. By utilizing a well-vetted collections agency, you can protect yourself against any potential disputes or legal complications that may arise during the collection process.

• Commercial collection agencies can use a variety of tactics to collect past due payments.
• Debt buyers are another option, who specialize in purchasing delinquent accounts at a discounted rate.
• Working with a collections services provider can help reduce the amount of time and energy you need to devote to financial accounts receivable and collection activities.

Conclusion

Managing accounts payable delinquencies is an important task for all businesses looking to ensure a healthy cash flow. In this blog post, we discussed various strategies businesses can employ to handle accounts payables delinquencies. These include implementing early payment discounts, setting expectations and penalties with vendors, taking an analytical approach to accounts payable, and utilizing payment automation solutions.

When executed correctly, these strategies can have an immense benefit on a business’s financial health and their relationships with their vendors. By managing payments efficiently, businesses can improve their vendor relationships and get more out of their contractual arrangements. Companies should regularly review and assess their accounts payable delinquency strategies to ensure they are getting the most out of them.