The High Cost of Ignoring Accounts Payable in Your Small Business

• Reading Time: 7 Minutes
• Published: June 20, 2023
• Last Updated: February 7, 2025

Running a small business can feel overwhelming, especially when it comes to managing finances. It is very common for small business owners to focus on generating revenues and overlook the importance of the accounts payable process. But here is the catch – ignoring accounts payable can cost you more than just money. From damaging supplier relationships to facing legal action or even bankruptcy, there is no end to the woes ignoring accounts payable might bring your way. In this blog, we will discuss how ignoring accounts payable is a bad idea, its importance for small business operations, and how accounts payable outsourcing can help. So, buckle up as we break down “The High Cost of Ignoring Accounts Payable in Your Small Business.”

Introduction: What Are Accounts Payable?

If you are like most small business owners, you probably do not give much thought to your accounts payable (AP) process. After all, it is just paying bills, right? Wrong. Your AP process is actually one of the most important aspects of your business, and ignoring it can cost you big time.

The term “accounts payable” refers to the goods or services a business purchases on credit from its vendors. Accounts payable is the department or function within a company that handles vendor invoices and payments. This includes everything from receiving invoices to issuing payments. A sound AP process is essential to keeping your business running smoothly. As a small business, you can ensure a streamlined AP process by hiring an in-house team or opting for accounts payable outsourcing companies. Though an in-house team is a good option, they may not be as efficient as an outsourced team of AP experts. Irrespective of all this, you may have to deal with late payments, missed discounts, and other costly mistakes if you are negligent about your accounts payable process. What more? Here is a list of 5 reasons why paying no heed to your AP process might be a risky proposition for you.

Reasons Why Ignoring Accounts Payable Is Risky

As a business owner, you may be used to thinking of accounts payable as simply “a necessary evil.” But ignoring your accounts payable is actually a very risky argument.

• Ignoring accounts payable can lead to late payment fees- Like most business owners, you are probably always looking for ways to cut costs. Unfortunately, ignoring your accounts payable can end up costing you more in the long run. Late payment fees can quickly add up and even negate the savings you have achieved by delaying payments. In some cases, late payment fees can even exceed the amount of the bill itself! Of course, it is not always possible to avoid late payment fees altogether. But by staying on top of your accounts payable and making timely payments, you can minimise their impact on your bottom line.
• Ignoring accounts payable can lead to damaged supplier relationships- Accounts payable is the amount of money a company owes to its suppliers, and turning a deaf ear to your AP can lead to damaged supplier relationships. When a company ignores its accounts payable, it fails to pay its suppliers on time. This can damage supplier relationships because the suppliers may feel that the company does not value their relationship. The suppliers may also feel the company is not doing business with them in good faith. The loss of suppliers can put the company at a competitive disadvantage, as it may have to source products from less reliable sources.
• Ignoring accounts payable can lead to a loss of discounts on future purchases- Like most small businesses, you purchase goods and services on credit. Suppliers usually offer discounts for early payment, so it is in your best interest to pay your AP as soon as possible. If you ignore your AP, you could miss out on these discounts and end up paying more for your goods and services in the long run. In addition, if you do not pay your AP, your supplier may refuse to extend credit to you in the future. This could limit your ability to grow your business. So, do not neglect your AP! Make sure you are staying on top of your accounts payable and taking advantage of early payment discounts.
• Ignoring accounts payable can lead to increased borrowing costs- When you pay no heed towards your AP, you may invite increased borrowing costs. This is because when you borrow money, the lender will often look at your credit score to determine your interest rate. A low credit score can result in a higher interest rate, which will cost you more in the long run. Additionally, if you have a history of not paying your accounts payable, lenders may be hesitant to loan you money in the future.
• Ignoring accounts payable can lead to cash flow problems- Disregarding your accounts payable is a surefire way to create cash flow problems down the road. When you do not pay your accounts payable in a timely manner, your suppliers may start demanding payment and refusing to extend further credit. This can put a real strain on your business’s cash flow, making it difficult to pay for other expenses or even make payroll. Do not let yourself get behind on accounts payable. Stay on top of your payments and work with your suppliers to ensure you have a healthy cash flow.

How Can You Avoid Overlooking Your Accounts Payable?

As we have learned so far, accounts payable is an overlooked area of business finances. This can be especially true for small businesses, which may not have the same level of financial oversight as larger businesses. However, overlooking accounts payable can lead to serious consequences, including late payments, missed discounts, errors in financial reporting, and others mentioned above. To avoid overlooking your accounts payable, follow these 4 steps:

• Streamline the AP process: One way to avoid overlooking your AP is to streamline the process. This can be done by utilising automated solutions like FreshBooks, setting up self-service portals for vendors, and using digital workflows.
• Ensure accurate data: Another way to avoid issues with your AP is to ensure that all data is accurate. This includes ensuring that vendor contact information is up-to-date, invoices are correctly coded, and approvals are in place.
• Improve visibility: The third step that can be taken is to improve visibility into the AP process. This can be done by implementing a robust reporting system like FreshBooks that provides real-time insights into AP performance.
• Get help: Finally, if your company is struggling with its AP, do not hesitate to get help from a specialist. In this matter, you can consult accounts payable outsourcing companies. These companies comprise experts proficient in handling accounts payable and other financial processes. They can assess your current setup and make recommendations on how to improve it.

Following these simple tips and consulting professional accounts payable services providers can help prevent problems down the road. With the help of a team of experts, you can ensure a streamlined AP process. Want to know how outsourcing comes to the rescue? Let us find the answers.

Outsourcing: The Rescuer

When it comes to your business, one of the last things you want to do is overlook your accounts payable. Unfortunately, this is a surprisingly easy thing to do – and it can have dire consequences for your business if you let it go unchecked. That is where accounts payable outsourcing comes in. By entrusting this critical task to a team of experienced professionals, you can rest assured that your accounts payable will always be in good hands.

One of the biggest challenges AP departments face is managing large volumes of invoices and maintaining accurate records. Outsourcing can provide access to advanced technologies that automate processes, such as electronic invoice management and data entry systems. It means fewer errors, greater record-keeping accuracy, and faster processing times.

Another advantage of outsourcing is access to experts with specialised skills and knowledge in areas such as accounting, tax compliance, as well as currency exchange rates or local regulations, which are essential for companies operating globally.

Finally, outsourcing allows AP teams to focus on core business activities instead of administrative tasks that consume valuable time and resources. By freeing up staff time from routine tasks like scanning invoices or reconciling statements, they can concentrate on strategic initiatives that add value to the business’s bottom line.

Overall, outsourcing offers a compelling opportunity for companies, large or small, looking to overcome common accounts payable challenges while improving operational performance across the board.

Final Remarks

In conclusion, ignoring accounts payable can seriously affect your small business. Failing to pay bills and invoices on time or at all negatively affects cash flow, damages relationships with vendors and suppliers, increases overhead expenses, and can lead to legal penalties as severe as bankruptcy. It is important to be proactive when it comes to accounts payable, and by creating an effective payment system, utilising automated tools and seeking help from professionals, you can rest assured. When you are searching for a quality group of accounting and bookkeeping professionals, look no further than Whiz Consulting. We take the extra steps necessary to ensure your accounts payable are being managed efficiently and accurately. Our remarkable team can lead to improved cash flow and strong supplier relations for your business. Get in touch with us now, and let us help take your venture to the next level!

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