AccountingBankingSmall Business

“To pay a vendor”

I’d love to discuss how your business can pay bills more quickly, with better management control and at a lower overall cost. Please the chat box below or the scheduling link to make an introduction.

Businesses routinely pay vendors as part of normal operations. We commonly refer to our requirement to “pay the bills”. There is a right way and a wrong way to do this. Then there is the messy grey area in the middle of right and wrong where most small businesses operate. As with many business processes, the key to success is breaking the process down to a clear procedure, communicating that procedure, then consistently following the procedure.

As a side point, every business with more than one manager should have a written bill payment policy as part of its operating agreement documents. That document is an important business planning and internal control function not covered in this blog post.

A second side point is that not every business has access to banking and electronic payments. I happen to specialize in these rare cases, but these are not covered in this blog post. This post is meant to address the most common business situations.

This post includes a simple two step method to pay a vendor that assures that the business is achieving these four goals of the bill payment process:

1) meeting all legal requirements,

2) paying bills timely,

3) maintaining good internal control, and

4) minimizing costs of the bill payment process.

The two critical first steps to achieve these goals:

1) Collect vendor information. We offer a form on a secure portal but most prefer to give this information via phone, text or email).

– Email address

– Individual contact name

– Vendor Business name (if applicable)

– Business Employer Identification Number (or individual’s social security number if applicable)

– Mailing address

– Telephone number

– Bank name and routing number (asking both allows for verification)

– Bank account number (In almost all cases payments should be made electronically, not by cash or paper check. Cash and paper checks drive up costs more than businesses realize).

2) Obtain the vendor’s signature on a completed Form 1099. This is retained with the business’ tax records. IRS tax penalties for not providing a Form 1099 to vendors can be severe and this signed form is often the best defense. While not all vendor payments require sending a Form 1099, it is good practice to always get a signed Form W9.

Most businesses that compare the cost of making vendor payments themselves or hiring a service to perform these tasks find that outsourcing is less expensive, more consistent and results in fewer errors. Bill payment services are much better prepared to do the job better and cheaper. In most cases it simply doesn’t make sense for a small business to handle these vendor payment functions internally. If I can help your business consider the best option, please use the chat box to ask for a free, no obligation discussion. Your business could quickly be on its way to lower costs and more professional vendor payments.

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