Introduction to Creditors
In simple accounting terms, a creditor refers to a party that has delivered a product or service to your business. In other words, someone you owe money to. When it comes to managing creditors, software like Xero and Dext have a significant role to play. But before you can decide which accounting software system best suits your business needs, you should know the best practices of managing creditors, as well as the benefits of implementing accounting software. For all of this and more, read on for our Essential Guide to Creditors.
How to Manage Creditors
The best way to approach the management of your creditors is two-fold:
1. Establish a creditors payment policy up-front
2. Employ an accounting software system
With these two processes in place, it’s nearly impossible for your business’ creditors management system to be unsuccessful.
1. Establish a Creditors Payment Policy Up-Front
Creating a well thought out payment policy for your stakeholders is an essential part of building a steadfast relationship with them. When establishing such a policy, consider how flexible you can be and what your purchasing objectives are with that particular client. Getting your creditors and clients to buy into a payment policy beforehand helps with determining the type of accounting system you’ll need to implement.
Traditional vs. Digital Accounting Practices
The biggest difference between traditional and digital accounting practices is the accuracy of the process and the result. When you remove pen and paper, and even Excel spreadsheets from the equation, and switch to digital software-based accounting, the result is a streamlined process void of errors.
Although some accountants still prefer the manual methods of accounting, the reliability of digital accounting practices far outweighs any of the benefits of manual accounting. That said, the advantages and disadvantages of traditional accounting methods include:
Advantages of a Traditional Accounting System
● Avoiding system errors and glitches
● Manual accounting offers the ability to double enter data in the form of both a debit and a
credit
● Traditional accounting systems mean that your data is always available and you won’t
be a victim of power cuts or server crashes
Disadvantages of a Traditional Accounting System
● Data entry errors and limitations on accuracy
● The potential for misplacing hard copies is high
● It’s an incredibly time-consuming and tedious process
● Profitability reflected in reports may not be accurate to your business’ actual numbers
2. Employ an Accounting Software System
8 Benefits of Accounting Software
Some accountants still swear by the traditional practices of managing creditors, but regardless of personal opinions, there are some truly undeniable benefits of implementing accounting software systems. Here are 8 noteworthy benefits:
1. Saving Time
When you employ an accounting software system, you will almost immediately start saving time which results in money saved too. Accounting software works to streamline otherwise tedious and time-consuming processes involved in manual bookkeeping. Depending on the software you choose, digital accounting systems can simultaneously process front-end documents and back-end transactions. For example, when you make payments to your creditors, create new bank deposits, and prepare monthly invoices, your accounting system will record and store all the details. This means that you don’t have to make time for recording this data on top of already having done the admin of each task.
2. Cash Flow Management
With the right accounting software in place, your debtors and creditors will be tracked, enabling you the certainty of your current as well as future cash flow status. How this works is, that you enter your bills and customer invoices along with their due dates to generate insightful reports. These reports will indicate if your receivables are enough for your future bills or if you’re facing a cash flow issue. As an added bonus, you can keep records of invoices and bills to help avoid late penalties and overdraft charges.
3. Room for Human Error is Removed
Traditional manual accounting processes increase the chances of error in calculations. This room for human error is entirely eliminated when you have accounting software systems in place as calculations are done automatically. This is a major benefit especially when it comes to preparing detailed invoices that bill specific items or worked hours at differing rates. You simply choose for invoicing, input the required data and the system does the rest.
4. Solutions are Scalable
High-quality accounting software solutions offer advanced features including the scalability of databases and intricate customisation. When building a business, it’s best to opt for these sorts of solutions as they can help to meet your growing demands and
needs. Expanding your business can be intimidating, but with the right accounting software in place, your client data and accounts can be accessed at any time and from any location.
5. Simple to Organise
Managing many accounts and dealing with multiple creditors on a monthly basis can become somewhat of a nightmare. But with accounting software like Xero or Dext in place, all your accounting data is recorded, organised and stored neatly for your
convenience.
6. Inventory Management
Any accounting software that’s worth your while will have an automatic inventory management element in place. With this sort of software, inventory is tracked even as orders are processed. In addition, you can use the software for stock forecasting and order management. Inventory management is a major benefit as it eliminates the admin of independently tracking stock which ultimately saves you time and money.
7. Report Generation
The generation of actionable reports is a major benefit of accounting software systems. These reports are beneficial because they provide insight into your business processes and help to track your business’ cash flow. Profits are easy to calculate from these reports and you’ll gain further insight into which customers generate the most revenue for your business. These in-depth and actionable reports are, of course, always generated based on the type of information you choose to input. Simply put, reports are there to help make smart decisions and to assist with business operations.
8. Tax Compliance
And finally, accounting software is highly beneficial as it calculates the amount of tax payable on each invoice. In addition to this, accounting software systems can be used to generate detailed reports based on the amount of tax your company has paid over any given period, meaning you have direct access to the information you need for filing government tax forms.
Now that you have key insight into how effective accounting software is for managing your business’ creditors, you could probably use some direction around which software to choose. At CloudworX, we recommend a combination of Xero and Dext as they’re compatible with each other.
Book a call now with a CloudworX Accountant to find out more on how to integrate accounting software into your business.
Cloudworx, Accounting for your Peace of Mind.