1. Paying bills too early: You don’t want to get in the habit of paying bills simply because they’re on your desk. If you have a bill that is due in net 30, wait until you’re closer to that 30-day point to pay the bill. If you pay a bill early, the only cash management you are helping is that of your vendor. Keep that money in your bank account for as long as you can so you can potentially make some discretionary interest on it.
3. From the Accounts Payable perspective, don’t let yourself drift to the cash method or modified cash method of accounting. Too many times we see organizations follow a practice of entering an invoice into accounts payable and issuing the check the same day. Again, you may be benefitting the vendor, but you certainly aren’t benefitting your organization. The day you receive an invoice/statement from a vendor it becomes an Accounts Payable item which typically is an “invoiceable” expense. That means you should immediately enter the invoice into your accounting system. In addition to getting the accounts payable process started immediately, it will help you keep your Financial Statements current as you now reflect that liability. Then wait to pay the bill until you are closer to the due date as referenced in item 1.
A good rule to follow is “Enter the invoice as soon as you can but pay the bill when you must”.