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FREE CONSULTATION818-436-2775
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Personal, Affordable Payroll Services, Bookkeeping, and Tax Processing for Small Business throughout Los Angeles County.

Small businesses: Be diligent about accounts receivable

In July, President Obama announced a new initiative called SupplierPay, which encourages large corporations to pay their suppliers for services rendered in an expedited and timely manner, or at least help them access more affordable financing.

 

SupplierPay aims to bolster small business by promoting punctual payments to accounts receivable (i.e. sales made but have yet to be collected by the purchasers, or credit) and reducing negative cash flow. As of the Washington Post’s publishing of their article, 26 corporations were on board, including Coca-Cola, IBM, Apple and FedEx.

 

Small supplier’s wait times on invoice payments average approximately two months, said the White House. The Recession didn’t help this situation as companies tend to hoard their cash to aid their own interests.

 

As a result, small businesses may have to borrow at high rates in the meantime to supplement cash flow and keep employees paid.

 

SupplierPay mirrors a previous initiative called QuickPay, requiring federal departments to expedite payments to small business contractors in as little as 15 days. The program created $1 billion in savings for contractors, the White House has said.

 

Even if your small business isn’t dealing with major corporations, it’s important to manage your accounts receivable to promote positive cash flow as much as possible. Here are some good tips provided by entrepreneur.com to keep your business out of trouble when thinking that profit on paper is equivalent to positive cash flow:

 

  • Make sure there is no red on your one line item, i.e. your operation cash flow.

 

  • Always make sure the time you allow for credit payments, or accounts receivable, is less than your payment obligations time period (Accounts payable days). As the article states: Collect cash faster than you have to pay it out.

 

  • Get the most out of your accountant. Small businesses don’t fully tap into their CPAs capabilities. Ask them for advice.

 

For small business accounting help in Los Angeles, contact ATPP for more information. We specialize in small business accounting, taxes and payroll.