How to Build Your Accounts Receivable and Accounts Payable Process

One of the most important pieces of establishing a strong accounting department in your business is a thorough understanding of your processes. Processes help improve efficiency, reduce error, and maintain high quality.

Two areas of your accounting department you will want to establish strong processes early on are your accounts receivable and accounts payable department. These areas are going to be responsible for making sure you receive income in a timely manner and expenses are paid appropriately.

Consider our following tips and process for how we recommend building your accounts receivable and payable processes.

Accounts Receivable

Establish Prices

The first step in establishing your accounts receivable process is determining your prices, packages, or pay structure. Depending on your type of business you will want to have a deep understanding of what you need to charge.

For example, if you provide services, what does your quoting process look like? What is the minimum price you will accept? How will prices fluctuate as project goals fluctuate?

While quoting is not specifically part of your accounts receivable process, it will heavily impact the factors that go into establishing an accounts receivable process.

Create a Workflow

Once you have an idea of how much you want to charge, you now need to determine when you will charge what. Ask yourself questions like: 

• What are your payment terms? 

• Do you require payment in full up front? Or do you allow for 50% upfront and 50% at the conclusion of services? 

• What does the timeline look like with the nature of your work?

Once you have an idea of payment terms, you are ready to begin building your process. Write down each step of your payment terms and the specific actions needed to complete each step. This will include everything from reminders of payments due, to confirming invoice totals, to sending reminders of delayed payments.

Accounts Payable

Establish Expenses

Establishing your accounts payable process is going to be similar to establishing your accounts receivable process in that you will need to start with having an understanding of your operations.

Make a list of all your expenses. This is going to include everything from applications to labor. Once you have every expense listed, be sure to include a list of approved vendors and the dates you expect to be charged. Some of these may be consistent like payroll expense, other bill dates may vary. 

Create A Workflow

Now that you have an understanding of your business expenses, make note of which ones are automatically charged, require your input, or occur during miscellaneous times. Then create terms around how each of these are handled.

For example:

Auto Charged Payments - These are going to be expenses where the vendor has your card information on file and you are automatically charged in recurring intervals. Make it part of your bookkeeping process to specifically check for these payments each month. Confirm vendors, amounts, and whether this charge should still be on the books.
Approval Payments - These are going to be charges where you are required to input some information before being charged, payroll expense, for example. If you pay some employees by the hour then you will want a process for collecting hours, approving hours, submitting hours into your payroll application, and sending payments.

Incorporate Applications

Now that you have an idea of what needs to be done in order to establish your accounts receivable and payable process, consider applications available. From the beginning of the process where you establish a quote to invoice your client regularly. 

Each application is going to have different pros and cons, so consider testing them out heavily before deciding on which application to go with. Some applications include:

• Bill.com: This application is primarily for accounts receivable and payable operations, which is why so many business owners love it. The application can easily be integrated with your accounting software, creating a seamless process from start to finish.

• QuickBooks: If you are already familiar with Quickbooks, using their accounts receivable and payable tools on hand may provide you with everything you need. 

• Stripe: Stripe comes with many features and integrations making it easy to piece together a process that works for you. From quoting to reminders, stripe can be the middleman to connect all your applications.

While these are just a few options that can help you establish your processes, what really matters is how your payments are structured and your payment terms. Each business may find each application helpful for different reasons.

Other Considerations

It is important to note here your process will likely change many times, especially in the beginning. As you test your processes, ask yourself questions like how can this be improved? Check in with team members who execute certain steps. Often times they will be able to provide the best insight as to whether a process supports the business or makes operations more difficult.

To reiterate, your process should change over time. A changing process is not a sign that you were doing things inefficiently, rather it is a sign you are improving!

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