Receivables & Payables

At the foundational level, your cash flow comes down to the relationship between the money you have coming in and the money you have going out. Put another way, this is the money you receive, which is your revenue, and the money you spend, which are your expenses. Accounts Receivable reflect the money you’ve earned, but not yet received, and Accounts Payable reflect the money you owe but have not yet paid.

They are important elements of your cash flow analysis because they represent future inflows and outflows of cash. Accounts Payable, or AP for short, and Accounts Receivable, or AR for short, must be actively monitored and coordinated in order to ensure your business has a healthy, sustainable cash flow.

At the foundational level, your cash flow comes down to the relationship between the money you have coming in and the money you have going out. Put another way, this is the money you receive, which is your revenue, and the money you spend, which are your expenses. Accounts Receivable reflect the money you’ve earned, but not yet received, and Accounts Payable reflect the money you owe but have not yet paid. They are important elements of your cash flow analysis because they represent future inflows and outflows of cash. Accounts Payable, or AP for short, and Accounts Receivable, or AR for short, must be actively monitored and coordinated in order to ensure your business has a healthy, sustainable cash flow.

At Profit Line, we know that managing your Accounts Payable and Accounts Receivable while focusing on growing your business can be a formidable challenge. If you’re like many business owners, it can be easy to forget exactly when bills come due, especially for long term contracts, and to collect on your outstanding invoices. Given the challenges associated with Accounts Payable and Accounts Receivable and the importance of keeping track of these accounts, we offer dedicated support in these areas to alleviate the burden of managing them yourself.

With our Accounts Payable Management service, our team will make sure that you know exactly how much you owe, to whom it’s owed, and when it’s due to be paid. We can help ensure that your vendors are paid on time and that you allocate your cash on hand strategically, to prioritize the payment of your bills. More than just recording and settling your payables, however, our team goes a step further by working to automate and streamline bill payment, assisting you with employee expense reimbursements, and tagging your expenses to specific projects or customer accounts so you can better understand the profitability of the various jobs you engage in. Head to our Payment Processing, Business Expense Reimbursement Management, and Project Related Expense Coding sections to learn more about these services.

On the flip side, our team also offers an Accounts Receivable Management service whereby we carefully record, track and manage the money your customers owe you. With Customer Invoicing and Accounts Receivable Follow-Up, we take charge of billing your customers for the products and services you provide to them and monitoring and collecting any outstanding invoices as they come due. The aim here is to collect on your receivables as quickly as possible so you have cash on hand to run your business and pay your expenses.

By working with Profit Line to manage your AP and AR, you have an expert team that is able to nail the details of your individual bills and invoices while also looking at the bigger picture of how your AP and AR work together. By utilizing AP and AR Aging schedules and making use of credit terms, your Profit Line partners will effectively coordinate these two processes to help optimize your cash flow and help you stay in the green.

ACCOUNTS RECEIVABLE MANAGEMENT

Accounts Receivable Management includes the whole cycle of Customer Invoicing, payment application, tracking of outstanding invoices, and the follow up related to these. Each part of this process is important. At Profit Line we know how important this part of your business is, which is why we focus on putting a process in place that works smoothly for you. We focus on streamlining this process, making it as automated and efficient as possible.

Accounts Receivable refers to the amounts a business is owed by its customers for providing them goods and/or services. Rather than collecting payment at point of sale, which is common for retail stores or e-commerce businesses, businesses that do not get paid at point of sale, and have to invoice their customers for the goods and services being provided, have to establish strong Accounts Receivable Management processes.

While extending credit to customers and allowing them to pay in the future is helpful in operating a business and generating revenue, this practice does not come without risks. Specifically, when extending credit there is always a risk that your customers will either become insolvent or just fail to pay altogether. When this happens, you lose money and you could potentially run into liquidity and profitability issues. Of course, it is not enough that customers merely pay at any time. In order for your business to run as smoothly as possible, it is crucial that customers pay in a timely manner. This ensures that you have the cash you need to pay your bills, make investments, and support daily operations. It allows you to better plan and forecast your cash flow, possibly identifying anticipated cash shortages, and planning accordingly.

We’ll address in more detail below two essential parts of Accounts Receivable Management:

CUSTOMER INVOICING

Whether you are in the business of selling goods or delivering services, you most likely depend on Customer Invoicing to ensure you get paid for what you provide to your customers. Put simply, an invoice is a document that itemizes a sales transaction between you and your customer, outlining prices and payment terms. Invoicing is central to your business’ cash management cycle.

Undoubtedly, your business will incur a variety of expenses in the course of daily operations. To ensure all of your bills can be paid on time, it is critical to have adequate cash on hand. Effective invoicing procedures can help with this. By invoicing customers in a timely manner and establishing payment terms and due dates that encourage prompt payment, you’ll more quickly receive the cash necessary to keep your business running smoothly and to keep your books firmly in the green.

Whether you run a business with already well-established invoicing procedures or are new to invoicing and are looking for some guidance, Profit Line is here to help you with all of your invoicing needs. Our team of experienced and knowledgeable accountants will ensure that you are getting expert support every step of the way. After getting a sense of the goods or services you provide and how they fit into the larger picture of your business, we will create an invoicing system that works for you and ensures invoices are sent out on time, every time, and contribute to healthy cash flow. We take care of the heavy lifting so you can focus on growing your business, delivering quality products and services, and developing trusted relationships with your customers.

ACCOUNTS RECEIVABLE FOLLOW-UP

Accounts Receivable refers to the amounts a business is owed by its customers for providing them goods and/or services. Rather than collecting payment at point of sale, which is common for retail stores or e-commerce businesses, businesses that invoice their customers for the goods and services being provided have Accounts Receivable, with their customers expected to pay at a later date, based on payment terms already agreed. Non profit organizations that receive pledges from donors, have Accounts Receivable that need to be booked and tracked.

While extending credit to customers and allowing them to pay in the future is helpful in operating a business and generating revenue, this practice does not come without risks. Specifically, when extending credit there is always a risk that your customers will either become insolvent or just fail to pay altogether. When this happens, you lose money and you could potentially run into liquidity and profitability issues. Of course, it is not enough that customers merely pay at any time. In order for your business to run as smoothly as possible, it is crucial that customers pay in a timely manner. This ensures that you have the cash you need to pay your bills, make investments, and support daily operations. It allows you to better plan and forecast your cash flow, possibly identifying anticipated cash shortages, and planning accordingly.

So, there are two primary functions when it comes to Accounts Receivable management, and Profit Line is here to help you with both of them.

First, it is crucial to keep track of which customers have paid you and which customers still owe you money. By ensuring that payments made to you are correctly applied to outstanding invoices, and applied in a timely way, your books will accurately track this for you. Running regular Accounts Receivable Aging reports, our team of expert bookkeepers keeps an eye on your AR and follows up with delinquent accounts to facilitate payment and generate healthier cash flow for your business. Following up, in a timely way, on overdue customer invoices can greatly reduce the time it takes to collect, and keep your AR in good shape.

Beyond determining which customers owe you money and following up for payment, the second critical component of Accounts Receivable management is making decisions on which customers should be extended credit, how much credit they should be extended, and what payment terms they should be afforded.

If this all sounds too complicated, don’t worry, we will manage this for you. By using the AR Aging report, we can not only see which customers still need to pay, but we can also analyze their payment patterns and track their spending against their credit to help you make smart decisions on better payment terms and whom to do business with in the future.

ACCOUNTS PAYABLE MANAGEMENT

Throughout the course of your business operations you will inevitably incur a variety of expenses. While no one likes having bills to pay, engaging in such transactions allows you to acquire the resources necessary to grow your business and operate it on a daily basis. Mounting bills can sometimes be daunting, especially if you are worried about having sufficient cash on hand to pay them all in time. If you are continuously stressed about paying your expenses, you are not alone - but it doesn’t have to be this way! Profit Line is here to help you manage your Accounts Payable and make bill payment an easy and stress-free process.

Accounts Payable, or AP, simply refers to the money you owe to a variety of parties that you transact with. For example, you might have payables with your vendors and suppliers, your landlord, and your utility company. Rather than remitting payment at the time of the transaction, payables occur when you are extended credit and afforded the ability to pay for the goods or services you received at a later date. Similar to how you set up payment terms with the customers you invoice, the bills you incur often come with their own set of payment terms that dictate when your bills are due and if you get any discount for paying early. These payment terms help you make decisions about when to pay your bills.

Ideal cash flow management practices would have you pay your bills as late as you can, while still paying by the due date, and receiving cash from customers as quickly as possible. Such a system generally helps to ward off a cash crunch that leaves you unable to pay your expenses in a timely way. Accounts Payable Management is, therefore, inextricably linked with Accounts Receivable Management. Together, the two processes work to manage cash flow, with the goal being to maintain positive cash flow by coordinating cash collections and cash disbursements. As your dedicated bookkeepers, your Profit Line team will oversee both of these processes and help you make sure you are on track to pay your bills on time.

Essentially, the accounts payable management process has two main functions. At the most basic level, this process serves to keep track of bills as they come due and remit payment to vendors on time. By running an Accounts Payable (AP) Aging report on a periodic basis, your Profit Line team will gain an understanding of the kinds of bills you regularly incur and when they come due, and will learn to prioritize payments by taking advantage of different credit terms afforded to you.

This leads to another key part of Accounts Payable Management: although it is generally best to pay bills as close to their due date as possible in order to be in the best position to have sufficient cash on hand to cover the expense, sometimes discounts provided for early payment are well worth taking advantage of. Don’t worry if this sounds complicated - your trusted Profit Line team will help you navigate your Accounts Payable to minimize the amounts you need to pay and maximize the time you have to make those payments.

We’ll address in more detail below some essential parts of Accounts Payable Management:

PAYMENT PROCESSING

In the course of your daily operations, you’ll incur expenses related to the various aspects of your business. Many of these will require specific payment methods, whilst others will be payable in the payment method of your choice. Expenses related to internet and phone use, and monthly software subscription payments are often pre-authorized by you for ACH debiting directly from your bank account or credit card account. Some vendors, like insurance providers, prefer payment to be made directly on their payment platforms. When dealing with a wide variety of payment options such as sending cash and checks through snail mail, remitting payment through online banking accounts, making ACH payments, or managing payments on some other expense management software, it can get a bit overwhelming to tackle which bills need to be paid when and by what method. What is more, there are often costs associated with certain payment methods, and you may begin to rack up considerable unwanted fees. This may be especially true if your business is managing both US domestic and international payments, USD and non-USD payments..

At Profit Line, our aim is to work with you to streamline your payment processing workflow, making it both more efficient and less costly. Where payment through snail mail is required, we work with you to remit and track payments this way. However, when possible, we strongly encourage our clients to shift towards e-payment systems. This often minimizes payment-related costs, makes payment processing much more efficient, and reduces the likelihood of fraud associated with snail mailed paper checks.

Increased organization is key here. As you can read more about in our Project Related Expense Coding section, it’s important to ensure that your various expenses are tagged or coded to the appropriate accounts. This ensures not only that your books will be tidy and your financial statements will be accurate, but also that you can accurately track how much you spend on certain projects and functions, and in turn how profitable certain activities are. These insights will allow your business to become more profitable and more successful going forward.

Transaction coding is best done as early as possible in the life of the transaction. Choosing the right tools for payment processing can allow expense coding to be done early, soon after the expense transaction is incurred.

Thus, your financial data is turned into valuable information which then leads to better decisions, so it’s crucial to have good data flowing into your information and accounting systems. We believe one of the best ways to improve the quality and quantity of data collected is to increasingly transition to digitized accounting and bookkeeping platforms. Payment processing is an excellent area to begin doing this because it will make sure all of your payments are accurate and on time, but more than that, it will provide you with a solid data stream upon which you can gain deeper insights into your business’ financial performance.

Our team has an excellent knowledge of the various types of digital platforms you can use to propel your business to the next level of payment processing and we will help you devise a system that makes the most financial and business sense for your company. After exploring your payment needs and current payment processes, we’ll examine opportunities to streamline your processes through online banking portals, ACH payments, and platforms like Bill.com, a robust AP management platform. Our team is committed to making your payment processing as easy, affordable and informative as possible.

EXPENSE REIMBURSEMENT MANAGEMENT

For companies that regularly reimburse employees and independent contractors for business-related expenses, it can often be a long and tedious process to get these individuals to submit their expense reports, to have these reports approved, and to then pay them back for the costs they incurred. This process is especially tedious when it is conducted manually, as it often takes longer and leaves more room for error. Making this process as painless as possible is better for everyone!

As with Payment Processing, we believe our clients are generally better served when expense reimbursement is digitized, as this allows them to develop more flexible and efficient expense management processes. For companies with relatively few reimbursable expenses, it may be sufficient to utilize the Google Suite - Google Docs and Google Sheets in particular - to manage the expense reporting and approval process. Such a system is certainly an improvement over any manual approval and reimbursement process.

However, for non profit organizations and businesses needing to regularly process reimbursable expenses, we generally recommend that expense management platforms such as Expensify or Tallie be adopted to provide enhanced efficiencies. These platforms are great because they have built in automation and streamlining capabilities in the end-to-end expense management and reimbursement process. Their mobile apps are super user friendly. To begin, receipts are easily managed through both a receipt capture and receipt forwarding feature. Whether you are at home or on the go, you can easily forward emailed receipts or snap a quick picture of paper receipts that are then uploaded to, and read by, the expense software. Utilizing OCR (optical character recognition) technology, these platforms can extract data from your receipts, push that information into expense reports, and detect any duplicate entries, taking all of the manual work out of this process. This technology is great for employees who are pressed for time because they do not need to perform data entry and can log information from wherever they are by using the mobile app. In addition they can capture the receipt on the spot, then discard it then and there, with no need to go hunting for it at a later date. No more lost receipts!

Just as the expense capture process is streamlined, so, too, is the expense approval process. In some cases, you can establish codes that automatically approve regular expenses, and in other cases, you have the ability to create clear approval workflows so managers in your organization can easily see who needs to provide approvals and what needs to be approved. All of this allows your employees to be reimbursed faster and you to reduce the headache and frustration that so often surrounds expense reporting.

From an accounting perspective, these platforms are also useful for expense categorization. By syncing your banking and credit card accounts to your preferred expense management software, you can easily and automatically match expenses to your receipts and tag them to their appropriate account and project. Then, by integrating your other business and accounting platforms, like QuickBooks, Bill.com and Gusto, you can automatically push this information into your bookkeeping records, saving even more time in the record keeping process. Not only can you ensure your financial records will be complete and accurate, but you will also be able to gain insight into the cost structure and profitability of the different projects and customers you have. Learn more about this critical function in our Project Related Expense Coding section.

Here we have provided a sample of the services and efficiencies offered on expense management platforms. When it comes time to make your decision and begin digitizing your expense management and reimbursement process, you can rest assured that your Profit Line staff will be with you every step of the way to optimize and implement these services.

PROJECT RELATED EXPENSE CODING

Whether you run a for-profit business selling goods or services or are a non profit organization, it’s mighty important to accurately track and understand what all of your expenses are for and how they relate to particular activities, projects, or customers. It is only when you have complete and detailed information in this area that you are able to manage your spending, stick to budgets and make decisions about which opportunities to pursue and which projects and customers to prioritize in order to increase profitability and maximize success.

For many businesses, both large and small, it’s difficult and time consuming to adequately track expenses to individual projects. With a multitude of projects and customers to attend to, it is easy to overlook expense tracking and categorization, which makes trying to understand the profitability of these projects a real pain point. However, it is crucial for the present and future success of your business to have this granular, boots on the ground view of each project you participate in. How else will you know where to spend your time and money? As the saying goes, the devil is in the details, and here at Profit Line, we are determined to help you get a handle on those details!

Project expense tracking comes with its challenges for all businesses, but we have found it can be especially difficult for service providers or for businesses where a significant portion of project-related costs come in the form of labor hours from employees or independent contractors. To make time tracking and associated categorization of costs easier, we generally recommend our clients make use of time tracking software such as TSheets, Everhour or Monday.com. Here, both employees and independent contractors can track the time they spend on each project or customer account, and this information can then be pushed to QuickBooks for expense recording, project coding, and for invoicing. It can also be sent to your payroll or payment platforms to make payment of labor costs quick and seamless.

From our experience, truly successful project expense coding starts with a strong Chart of Accounts. At its core, your Chart of Accounts represents the dynamism and structure of your business. It tells you the different types of income you earn, the various classes of expenses you incur, what assets you have and what types and amounts of liabilities you owe. While a Chart of Accounts has a basic structure and elements that are common for most businesses, there is plenty of room for nuance and customization so that it is truly representative of your business and the types of transactions you engage in.

When our team begins working with you, we will analyze your Chart of Accounts to make sure it is complete and set up for bookkeeping success. This usually occurs in the Bookkeeping Set Up or Bookkeeping Catch Up and Clean Up portion of our engagement with you. Doing so will make sure that all of the expenses you incur have an account they can be tagged to so as to accurately represent their function in your operations. Once this is underway, our team will help you generate periodic Profit & Loss Statements for each project so you really get a sense of their profitability on an individual level. This way, you will have the insights you need to make informed decisions regarding the products and services you provide. With clear information on project-related expenses, you will be able to discern where costs can be cut, where the pricing of your offerings needs to be adjusted, which products and services are benefiting your business and which are dragging down your bottom line.

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