Business Rhythm: Vendor Bills

  • Posted by FinancialZone
  • 09 February 2011
  • Strategies

Running a business is no small task. It's composed of many activities of varying durations, start and expected completion dates, dependencies, and so on. The day to day activities can get overwhelming, and it becomes all too easy to lose sight of the big picture when you're constantly engaging in every detail as they crop up.

An extremely effective way of making things more manageable is to create a process or workflow, that when applied consistently over time, creates what we like to call a Business Rhythm.  A rhythm is a set of rules that guides and sets the pace for business activities. Whether you're paying your vendors, invoicing your clients, or publishing and distributing your newsletter, you can count on a measured rhythm to help you get things done more efficiently.

This is the first installment of our Business Rhythm blog series, and we'll be discussing vendor bills management.

As part of running a successful business, incurring expenses and paying vendors is a necessity.  These usually come in the form of paper or electronic bills, but they can also occur as scheduled charges to your cash or credit accounts.  The problem with not having a rhythm for managing and paying bills is that, besides being inefficient, you're dealing with cash outflows in a sporadic manner which prevents you from effectively managing and forecasting cash.  The solution is to determine the intervals between bill cycles, identify the steps in the cycle, and only complete each step once per cycle.

To create a rhythm for managing bills, you must:

  • Outline a detailed workflow for how bills are handled and define the cycle interval such as every Friday or every other Wednesday.
  • Assign roles and responsibilities to the workflow with an emphasis on good cash controls to reduce risk.
  • Implement the workflow  immediately, apply consistently over time, and make refinements as needed.

With a clear process in place, you can expect to spend less time managing bills or even thinking about managing bills, and you'll have a clearer picture of your cash position. See example below.

Vendor Bill Cycle Example
  • Review Bills
  • Input Bills
  • Approve Payment
  • Pay Bills
Each Friday, new vendor bills are reviewed and input into the system by Person A. Next, Person B reviews a list of all bills that should be paid in this cycle and then approves specific bills for payment. Person C (if practicable) or Person B then pays the bills.

This process can be further automated and controlled using a QuickBooks add-on or 3rd party application, which will allow for additional controls and automation workflow.

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