In order to run a successful business, a lot has to happen on the back end. Accounting, which is usually performed by the business owner in the beginning, is the place where revenue and expenses meet, and hopefully result in a positive number. While business accounting can become very complex, do-it-yourself business owners can make things easier by understanding the differences between accounts payable, accounts receivable, and liabilities.
Accounts payable are fairly simple. They consist mostly of bills to your business that you need to pay. Typical accounts payable include invoices from suppliers, payroll expenses, lease payments on the office or facilities, company lines of credit, and other short-term debt and overhead costs. Think of accounts payable as an inbox, of sorts. Your goal as a business owner is to keep that inbox empty by paying off any amounts due to other people or businesses.
For many business owners, accounts receivable is the enjoyable part of accounting. In short, accounts receivable is the money owed to your business from sales, consultations, and other services. Within accounts receivable, there is money that has been received from customers, and outstanding balances that have yet to be settled. Since most invoices are issued with a window of at least 30 days, revenue is often staggered. If a client’s account goes unsettled for longer than the schedule on the invoice, your business may have to perform a collection to get the money you are owed from the sale.
Liabilities are similar to accounts payable, with the exception that liabilities include both short and long-term debts, as well as obligations to outside parties. Bills, loan payments, expenses, services and products that have yet to be delivered, and more fall under liabilities. Future pay-outs on legal matters, warranties, insurance, and more are also considered liabilities.
By looking at your organization’s accounts payable, total liabilities and accounts receivable, you can get a clear picture of your cash flow. One of the best ways to improve your cash flow is through factoring services, which quickly convert outstanding customer invoices to cash, so your business has ample capital to cover your liabilities, and plan for growth projects.
At New Century Financial, we help businesses achieve an improved cash flow with our factoring services. If you need a boost in cash flow, or are tired of the lag in customer payments, contact the experts at New Century Financial today.