Long collection periods increase operating expenditures through additional billing costs, lost interest and the need to borrow to meet current operations. Accounts payable take advantage of cash discounts. Taking advantage of cash discounts that suppliers offer saves money and is an important step for the business in its attempts to establish itself as a primary customer. Being considered such a customer can facilitate delivery, improve services and can be an excellent source of new business leads. Disbursements are made by prenumbered check.
Prenumbered checks are primary source documents for accurately determining expenses.
Not using them increases the time spent on bookkeeping, makes it difficult to monitor expenses accurately, increases the probability of double payments and communicates to suppliers that the business is a marginal operation. The company projects cash flow needs. Most small businesses use a cash basis rather than an accrual basis of accounting. Though a cash basis is easier and takes less time to maintain, it often gets the business into trouble, because the business has incurred expenses for which there is no proper accounting. By keeping track of accounts receivable and accounts payable, it is relatively easy to project cash flow needs.