Accounts Payable Explained: A Guide for Online Sellers

Running an online business is a whirlwind of exciting tasks, from crafting stunning product descriptions to strategising your next marketing campaign. But amidst all the buzz, it's easy to overlook the less glamorous, but equally important, financial side of things. That's where understanding accounts payable comes in.

So, what exactly does accounts payable mean in the context of your online business? And why should you care? Let's break it down and equip you with the knowledge you need to manage this important aspect of your finances.

In a nutshell, accounts payable (often shortened to AP) represents the money your business owes to others. It's all about those outstanding bills you need to pay.

Let's say you're restocking your online store with a fresh batch of goodies from your favourite wholesaler. You receive an invoice for the order – that invoice represents an account payable. It's a record of the purchase you made and the amount you owe to your supplier.

The key thing to remember is that accounts payable is considered a short-term liability. This means you're expected to settle these outstanding amounts within a specific timeframe, usually within 30 to 90 days, depending on the agreed-upon payment terms.

You might be thinking, "Okay, accounts payable is about paying bills. Pretty straightforward, right?" While the concept itself is simple, its impact on your online business is significant. Here's why:

Imagine you're a customer and consistently pay your bills on time. You'd probably be the supplier's favourite, right? The same principle applies to your business. Whether you're sourcing handcrafted jewellery, trendy furniture pieces, or the latest must-have toys, paying your suppliers promptly builds trust and strengthens those valuable relationships. This can lead to more favourable payment terms, early payment discounts, and even priority access to in-demand products.

Cash flow is the lifeblood of any business. Tracking your accounts payable diligently helps you forecast outgoing payments accurately. This allows you to plan ahead, ensure you have enough cash on hand to cover your obligations, and avoid those pesky late payment fees.

Think of your accounts payable as one piece of the financial puzzle. When you record and manage them properly, you gain a clearer and more accurate picture of your business's financial health. This information is important for making informed decisions about pricing, expenses, and overall business strategy.

To manage accounts payable effectively, start by establishing a system. Use spreadsheets, accounting software, or online tools to track invoices and their due dates. This helps ensure you don’t miss any payments and can keep your cash flow under control.

Discuss favourable payment schedules with your suppliers. Negotiating terms that align with your cash flow can provide flexibility and help you manage your finances more effectively. Whether it’s extending payment deadlines or setting up instalment plans, good communication with your suppliers can make a big difference.

If your cash flow allows, consider paying invoices early to take advantage of any offered discounts. Many suppliers offer discounts for early payment as an incentive. This can save you money and also strengthen your relationship with suppliers, potentially leading to more favourable terms in the future.

These two accounting terms often trip people up, but understanding the difference is important for managing your business finances effectively.

While it might not be the most glamorous aspect of running an online business, mastering your accounts payable is essential for maintaining smooth operations and healthy financial standing. By implementing efficient systems, communicating clearly with suppliers, and staying organised, you can avoid late fees, build strong relationships, and gain better control over your cash flow.

Remember, a well-managed business is a thriving business. And for online sellers looking to expand their reach and tap into an amazing customer base, the Amazon store offers a world of possibilities.