The Secret to Getting Paid and Staying Organized: Understanding AR and AP
If you run a business, you know the stress of wondering where your money is. Whether you are waiting for a customer to pay or trying to find a bill buried on your desk, managing your cash flow comes down to two simple terms: Accounts Receivable (AR) and Accounts Payable (AP).
Accounts Receivable: How to Stop Chasing Money
Accounts Receivable, often called AR, exists if you deliver services today but get paid at a future date. Essentially, it is just the money your customers owe you. To keep your AR manageable and ensure good collections, you need a system of regular reminders.
A solid habit for collections looks like this:
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The Friendly Nudge: As soon as an invoice is due and unpaid, send a friendly email: “Hey, you probably forgot to pay me on this. Can you please do so?”
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The Follow-Up: If a week goes by and they still haven’t paid, send a slightly more urgent message. Ask them to confirm they have the invoice and tell you exactly when they plan to pay.
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The Phone Call: If the emails don’t work, it is time to pick up the phone and say: “Hey Frank, you owe me some money”.
The key to keeping your AR in good shape is making these reminders systematic habits rather than random tasks.
Accounts Payable: Getting Rid of the Paper Pile
On the flip side, we have Accounts Payable, or AP. This is simply the money you owe to your vendors for products and services: think insurance, utilities, subcontractors, or your landlord.
A good business owner doesn’t keep these in a stack of papers on a desk or lost in an email inbox. Instead, you should organize them in a system like QuickBooks. This allows you to look at your bills quickly, easily, and systematically.
When your bills are organized, you can look at who you owe and compare it to how much money is in the bank. This allows you to make calm decisions on when to pay, cutting down on that frantic feeling of: “Where is that freaking piece of paper? I know I put it somewhere!”