BY recording all their transactions and regularly updating their accounts, entrepreneurs can boost their credit rating.

As the world becomes increasingly globalised, more and more organisations are acquiring their products and services on credit. Furthermore, to maintain their competitive edge, suppliers are encouraged to offer credit to customers; these creditors, in turn, can be seen in a business’s accounts payable. Of course, business owners want to—and should—pay their expenses on time. After all, doing so will not only improve their relationships with their suppliers, customers, and employees but also improve their credit standing. Thus, business owners must understand the importance of accounts payable to help them manage their finances.

Success is never guaranteed, but by arming themselves with the proper tools, entrepreneurs can increase their chances of achieving success. Indeed, to establish themselves as legitimate business owners, entrepreneurs should learn the differences between sales and tax invoices, maintain good credit, use accounts payable to improve their business’s cash flow, and utilise the latest technologies and services to record all their transactions. Being an entrepreneur is by no means easy, but if you put in the necessary work, you will be able to maintain good credit, which, in turn, will improve your business’s financial standing.

1. Importance of Accounts Payable

Employees who process sales and tax invoices must be aware that there is a difference between the two. They share some characteristics, but there are a few things that set them apart. Organisations that are value-added tax (VAT) registered will be entitled to reclaim VAT paid when acquiring goods and services. When VAT is received from customers, the organisation has a responsibility to remit the net VAT balance to the revenue authority on the established due dates.

Some suppliers will prepare manual invoices and then send them to credit customers with their drivers or office attendants/assistants. Other organisations have an Integrated Information System and internet access, so when they prepare an invoice, it is sent to the credit customer electronically.

Suppliers may be willing to offer credit to certain customers. However, customers who want to benefit from credit purchases must build their relationships with suppliers. Oftentimes, suppliers assess their customers and evaluate who meets their requirements to qualify for credit. Suppliers are also willing to offer different discount percentages to repeat customers and to those who purchase large quantities.

Management must ensure that they have an Integrated Information System to record their inventory and accounts payable transactions. With an increase in the quantity of goods and services purchased on credit, the accounts payable balance will increase. The accounts payable policies and procedures will guide employees in processing suppliers’ invoices, regulate payments to suppliers, and determine the approval levels of officers in the organisation to authorise suppliers’ payments.

When suppliers’ statements are received by management, someone within the organisation must be responsible for reconciling the accounts payable balance with the suppliers’ statement. Every effort must be made to reconcile suppliers’ statements and settle the outstanding balance according to the due dates. The ages of accounts payable balances are important for guiding management on when suppliers’ payments are due. Management must strive to pay suppliers on time so they can benefit from future credit purchases. The organisation’s accounts payable turnover ratio can be used to assess whether the company is paying suppliers in line with industry standards.

Accounts payable has an important role in any organisation. Most organisations depend on someone to provide the goods and services they need. Sometimes, those goods and services are fully paid for by customers, but on other occasions customers collect goods and pay for them at a later date, which gives rise to accounts payable.

2. Negotiating Credit from Suppliers

Every organisation looks forward to having enough goods available to it. There are times when organisations want some goods, but they plan to pay later for the benefit they receive now.

Many suppliers will not give credit to every customer who approaches them. However, many suppliers want to sell more of their goods, so they are willing to find customers who can purchase more goods on credit.

Suppliers will often take time to evaluate each customer before deciding to accept or reject them as credit customers. Suppliers that have been in operation for many years have gained extensive experience with credit customers, and they may take time to determine which customers should be eligible for credit.

Every customer seeking to benefit from credit must make a great effort to convince their supplier that they are a good customer who deserves credit privileges. One way of winning a supplier’s confidence is to be a good cash customer. When a supplier knows that their customers often purchase goods and always pay on time, they may be willing to extend credit to those customers.

Every customer who needs credit must understand that the supplier has to protect their own interests. Sadly, many suppliers have had bad experiences with customers who collected goods from them on credit but did not fully settle their outstanding balances. Therefore, those suppliers are mindful not to expose their operations to such risk.

Good cash customers must also show that they are purchasing large quantities of goods. Sometimes, because of the volume they have purchased, the supplier may consider them good customers and grant them credit.

Many suppliers may start new customers with small credit limits for purchases. This allows the suppliers to determine the customer’s ability to settle their credit balance in a timely manner. If it is proven that customers who took credit were able to settle their small balances early, they may eventually be entitled to larger portions of credit.

The ability to benefit from credit purchases will grow over time. Therefore, customers who are seeking credit purchases must be patient. As they remain patient and wait for their opportunities, they must continue to purchase goods from the supplier and settle any outstanding balance on or before the due date.

3. How to Build Good Relationships with Suppliers

There are several steps organisations must take to build strong relationships with suppliers (also called vendors). Their relationships will grow progressively and not immediately. Most of the time, suppliers enjoy good relationships with customers who have repeatedly purchased goods and services from them. First-time customers may not be able to benefit from a good relationship with suppliers due to lack of familiarity.

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