Stop Going Over Budget: Forecasting Accounts Payable for Businesses

Michael Pignatelli
Jan 18, 2023

Monitoring your business's accounts payable is crucial to determine the state of its financial health. Accurate forecasting allows you to gain control of your cash flow. In addition, knowing when your payments are due builds a good relationship with your suppliers and opens up strategies for money-saving plans for your payables.

Forecasting accounts payable may not be your priority when handling business accounting, but it can benefit your business. In this blog post, we'll talk more about forecasting accounts payable so you know how to do it for your business.

Accounts Payable and Forecasting

Accounts payable refers to short-term liabilities a business needs to pay off within a year or a shorter time frame. Understanding and seeing your business expenses fully allows you to do the groundwork for building a suitable budget for your business.

Forecasting will help you prepare to meet your payments by considering different scenarios. For example, if the price of raw materials increase or third-party fees change their rates, you can ensure your business can still fulfill its obligations and make wise decisions regarding your business finances.

Ways To Do Accounts Payable Forecasting

You can monitor the money going out of your business in several ways. Here are some things you can do to help you build an accurate accounts payable forecast.

Understand Spending Patterns

The payment patterns for your business are an important piece of information in creating an accurate forecast. Your expenses on payroll and inventory are relatively consistent month to month and easier to track. But always look at past spending data to see accurate patterns.

For example, look at the months you spend more on inventory. Some of your items may be in demand in certain months, so be mindful of that so you can plan your budget accordingly. You can also accumulate your past invoices to have a picture of where your money is going.

Noticing the patterns will also help you see where you can save, which can be good for your cash flow.

Be Up to Date With Industry Trends

Understanding trends in the marketplace, like technological advances and consumer behaviour, will help determine if these changes can affect your business payables. Changes in the industry are quick, and if you're not keen enough to see them, you may fall behind, which can make your forecast less accurate.

You can track some marketing trends by:

  • Being updated on the news about changes and developments related to your field.
  • Using data analytics to see possible trend changes. An analytics tool is easier and can predict trends before they even happen, so you’ll always be a step ahead.

Use and Analyze Historical Data

Using historical data is advantageous for forecasting because many methods maximize historical data. The most common way of using past data is through extrapolation. However, there's room for error with this method because it doesn't consider the changes that happened in your business.

Statistical modelling is a more accurate method for creating accounts payable forecasts. This method helps business owners identify behavior in ways businesses do their payments and create a forecast based on its current conditions. This forecasting method is the most accurate but requires a huge investment in time and resources.

If you're new to forecasting, it is best to use both methods for the best results. Then, play with the strength of each method to make better business decisions.

Track Invoices and Payment Deadlines

You need all the data to create an accurate forecast. That's why it is crucial that you keep track of your invoices and dues. Here are some ways to do it effectively:

  • Input all your outstanding invoices and their dues into a spreadsheet. Doing this will help you see which of your payments are nearing their deadlines so you can plan accordingly.
  • Set up timely calendar reminders using accounting software. Better yet, automate your entire accounts payable process to ensure you don't miss any of your upcoming liabilities.

Invest in Accounting Software

Accounting software is a valuable tool for businesses. Think of it as a virtual assistant that handles certain tasks that you can't because your hands are full. For example, you can start with a Microsoft Excel spreadsheet to organize your cash flow in a certain accounting period. Although this may keep things organized, you still have to input data and create financial statements manually when needed.

If you want something more convenient, there are several accounting software you can choose from. These software options can perform basic accounting tasks and even more complex ones. Furthermore, they can produce financial statements like income statements, balance sheets, and other reports in just a few clicks.

Some even have a feature to create financial models for your business based on the data you input into the system. The right accounting software will help create your business's accurate accounts payable forecast.

How To Calculate Expected Accounts Payable

Knowing how much you need to pay at the end of each period will help you plan your budget. Fortunately, there is a simple calculation method that allows you to get an overview of your expected accounts payables.

Here is how to do it:

  • Determine the average number of days you need to pay your invoices.
  • Determine the total amount you need to pay suppliers.

Once you have this data, you can simply follow the formula:

(Current liabilities)/(Total operating cash/Number of days) = Expected accounts payable

So, for example, if your business has an outstanding liability of $10,000 and your total 

operating cost is $25,000, and you have 25 days to complete your payments. You can calculate your expected payables by:

(10,000)/(25,000/25) = $10,000

You can expect your business needs to pay $10,000 by the end of 25 days.

Benefits of Doing Accounts Payable Forecasts

Forecasting is an optional part of accounting, and some business owners find it unnecessary. However, forecasting is a good move for your business if you want a clearer view of your financial ratios. Here are some benefits of doing it.

Helps Maximize Working Capital

The results of the accounts payable forecast are valuable for improving your cash flow forecasting. This will help get key insights into how much of your working capital is available for business growth and investment. In addition, a clear picture of your forecast will help you maximize your working capital more confidently and risk-free.

Establishes Good Vendor Relationships

Nothing makes your suppliers happier than you paying them on time. Forecasting accounts payable will help you see your deliverables ahead of time so you won't incur late payments. In addition, timely payments build trust and good relationships with your suppliers.

Moreover, forecasting helps you identify if you will run into problems with your payments. This way, you can give your suppliers a warning if there's no choice but to delay your payments.

Lessens Payment Disruptions

Knowing your expected liabilities will help prevent disruptions in your payments. Understanding how much working capital comes in and out of your business in a specific period will help you eliminate risks and other potential disruptions.

Forecasting Accounts Payable With Unloop

Now that you have an overview of how forecasting accounts payable can benefit your business, you should start planning how you can forecast. Forecasting is not an easy task, so it is better to have a professional handle this for you.

Unloop offers AP forecasting for small ecommerce businesses. Our team of experts will ensure:

  • Your business will always pay suppliers on time.
  • Automation for all your payable workflows using accounting software, so you save time from inputting data manually.
  • The lowest possible rate for foreign payables, as we can handle foreign currency as well.

Unloop can handle all your accounts payable needs and even other accounting needs. Our team is ready to work with you on your bookkeeping, income tax, payroll, financial forecasts, and accounting. Book a call and work with us today!

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Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting.. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.

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