Accounts Payable: Managing What You Owe Without Killing Cash Flow

Payables Are a Strategy, Not Just an Obligation

Most business owners think about accounts payable (AP) as a to-do list: bills come in, bills get paid. But how you manage payables directly affects your cash flow, vendor relationships, and ability to negotiate.

Done well, AP management gives you breathing room. Done poorly, it burns bridges and creates cash crises.

Know What You Owe and When

The first step is visibility. At any given time, you should know:

• Every outstanding bill and its amount
• The due date for each
• The payment terms (Net 30, Net 15, Due on Receipt)
• Any early payment discounts available
• The total AP balance

If you cannot answer these questions in under two minutes, your payables process needs work.

The Weekly AP Review

Set a weekly routine to review and schedule payments:

1. Pull your AP aging report. This shows all outstanding bills grouped by how old they are.
2. Identify what is due this week and next week. Prioritize these for payment.
3. Check your cash position. Do you have enough to pay everything due? If not, triage.
4. Schedule payments. Use your bank's bill pay or accounting software to schedule payments strategically.
5. Record everything. Every payment should be logged against the correct bill and expense category.

Strategic Payment Timing

Paying bills does not mean paying everything the second it arrives. It means paying strategically:

Take Early Payment Discounts When They Make Sense

If a vendor offers 2/10 Net 30 (2% discount if paid within 10 days), take it. That 2% discount annualized is roughly 36% return on your money. You will not find a better return elsewhere.

Use Full Payment Terms When Cash Is Tight

If terms are Net 30 and there is no early payment discount, use the full 30 days. That is free financing. Just never pay late.

Prioritize by Consequence

If cash is limited, prioritize:

1. Payroll and payroll taxes (non-negotiable, legal consequences)
2. Rent and utilities (you need a place to operate)
3. Key vendors and subcontractors (the ones actively working your current jobs)
4. Insurance premiums (lapse in coverage is catastrophic)
5. Everything else, in order of due date

Negotiating Better Terms

Your payment terms are not set in stone. As your business grows and your payment history improves, negotiate:

• Extended terms: Move from Net 15 to Net 30, or Net 30 to Net 45
• Volume discounts: Consolidate purchases with fewer vendors for better pricing
• Credit accounts: Move from COD (cash on delivery) to credit terms

Vendors want reliable, long-term customers. A track record of on-time payments gives you leverage.

Three-Way Matching

For any significant purchase, implement three-way matching:

1. Purchase order: What you ordered
2. Receiving report: What you actually received
3. Vendor invoice: What the vendor billed you

All three should match before you pay. This prevents paying for goods you did not receive, duplicate payments, and billing errors. You would be surprised how often invoices do not match what was actually delivered.

Automating Payables

Manual AP processes are slow, error-prone, and a waste of your time. Use:

• Accounting software (QuickBooks, Xero) to enter and track bills
• Bank bill pay to schedule payments
• Automatic payments for recurring fixed expenses (rent, software, insurance)
• Receipt capture apps to digitize and attach documentation

Be cautious with full automation on variable expenses. You want a human reviewing invoices that change month to month.

Avoiding Common Payables Mistakes

• Paying from memory. If you are not running an AP aging report, you are guessing.
• Double payments. This happens more than you think, especially with email invoices. Implement a system to mark invoices as entered.
• Missing payment deadlines. Late fees are wasted money. Damaged vendor relationships are even more expensive.
• Not reconciling vendor statements. When a vendor sends a monthly statement, compare it to your records. Discrepancies should be investigated immediately.
• Commingling personal and business. Pay business expenses from business accounts only.

When Cash Is Tight

If you genuinely cannot pay all your bills on time, do not go silent. Communication matters:

1. Call the vendor before the due date. Explain the situation. Propose a payment plan.
2. Pay something. A partial payment shows good faith.
3. Get any agreement in writing. Even an email confirmation of an extended deadline protects you.
4. Follow through. If you promise to pay by a certain date, do it.

Vendors who feel informed and respected will work with you. Vendors who get ghosted will send you to collections.

The Bottom Line

Accounts payable management is about being intentional with your cash. Pay on time, take discounts when they are worth it, use your full terms when cash is tight, and never lose sight of what you owe. Vendors are partners in your business, and how you manage your obligations reflects the kind of business you run.