Paying bills

The payment run

Instead of paying each bill as soon as it is approved, AP pays a batch on a set schedule, usually weekly or every two weeks. A batch means someone reviews the whole list before money leaves, and it lets you pay to terms on purpose.

1. 1

   Select

   List approved bills due on or before the next run, plus any with an early-payment discount that would expire first.

2. 2

   Review

   Check the list for duplicates, bills on hold, credit notes that should be applied, and vendors whose bank details changed recently.

3. 3

   Check cash

   Compare the total with the cash forecast and the bank balance.

4. 4

   Approve

   Someone who did not prepare the run approves it.

5. 5

   Release

   Send the payments by ACH, check or wire.

6. 6

   Record and notify

   Post each payment against its bill and send remittance advice so the supplier knows what was paid.

How often to pay, and when

A weekly run makes it easy to pay on the due date and inside discount windows. A run every two weeks or monthly means less admin, but more bills are paid early or late because they fall between runs. Most small and mid-sized businesses settle on weekly or every two weeks, with off-cycle payments only for genuine emergencies, approved the same way as a normal run.

Paying to terms, rather than as soon as a bill is approved, keeps cash in the business longer. Paying after terms damages supplier relationships and can cost late fees. Module 7 shows how this shows up in days payable outstanding.

Early-payment discounts

Some suppliers offer a discount for paying early, written as discount/days, net due date. On 2/10 net 30 terms, you take 2% off by paying within 10 days; otherwise the full amount is due on day 30.

That 2% is worth more than it looks. Paying 20 days early to save 2% is a 2% return in 20 days. There are about 18 periods of 20 days in a year, so the annualized return is about 37%. Put the other way, skipping the discount is like borrowing from the supplier at about 37% a year. If your business has the cash, or can borrow for less, the discount is usually worth taking.

Missed discounts are usually a cycle-time problem: the invoice was still waiting for approval when the discount date passed. The early payment discount calculator works out the annualized return for any terms.

Payment methods and their risks

• ACH: low cost and traceable. A duplicate ACH can sometimes be reversed: Nacha rules allow a reversal for a duplicate entry if it reaches the receiving bank within five banking days after settlement.
• Check: slower to arrive and clear. An uncashed duplicate check can be stopped at your bank.
• Wire: fast, and whether a wire can be recalled depends on your bank, so verify the bank details before the first wire to any vendor.
• Card or payment app: payments made this way are generally reported by the processor on Form 1099-K, not on your 1099-NEC.

Whatever the method, the same rule holds: never pay to new bank details until you have confirmed them by phone on a number you already hold.

Scheduling and recording payments in QuickBooks Online

Intuit’s help pages describe two ways to handle a bill in QuickBooks Online. To pay through QuickBooks Bill Pay, open Bills, find the bill on the Unpaid tab, choose Schedule payment, then set the bank account, the method (ACH or a check Intuit mails), the withdrawal date and the amount, and confirm. Intuit says you can select up to 20 bills at a time on the Basic plan and up to 50 on Premium and Elite.

If you paid outside QuickBooks, by your bank, check, card or cash, record it from Pay bills instead: choose the payment account and date, select the bills and save. Do one or the other, never both: scheduling a payment and also recording it from Pay bills records it twice.

Aequo AP handles the steps before payment, such as capture, matching, coding and approval, and syncs the approved bill to QuickBooks Online or Xero. Paying vendors from Aequo is coming soon; today you pay in the accounting system.

Why recording matters

Every payment must be recorded against the bill it pays. If it is not, the bill stays open on the aging report, it may be paid again in the next run, and the AP balance will not reconcile at month-end. When a payment covers several bills, or a credit note reduces one, apply it to each bill explicitly rather than leaving an unapplied payment on the vendor’s account.