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Avoid these two errors when dealing with your creditors or you'll be liable for penalties and interest

by , 23 April 2014
You need to tread carefully when dealing with your creditors. If you don't, you'll incur penalties and interest. And your company's cash flow will be severely affected. Luckily, there's a way to avoid this: Don't make these two errors...

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How to save on auditors' fees and:
 

  • Ensure your fixed asset register is prepared by the time your auditor arrives;
  • Maintain your cash flow;
  • Identify problem areas in your business; and
  • Cost less than what an accountant charges for two hours of his work.
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Find out how here…

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Before we get to the two errors, let's find out more about creditors

Creditors are short-term liabilities your company needs to settle within 12 months.

This means your business needs cash available to pay the accounts in the immediate future.

You normally need to make payment within 60 days from the date of the transaction. And you have to manage this properly if you want to ensure there's no strain on your company's cash flow.

To do that, it means you have to avoid making the following errors.

Two errors you need to avoid when it comes to your creditors

The Practical Accountancy Loose Leaf says if you don't manage creditor balances well, you'll end up making over-payments and underpayments.

Let's take a look at each of the two errors.

#1: Over-payments (i.e. you pay more than you owe the creditor.) This results in you paying more from your cash balance than you should.

#2: Underpayments (i.e. you pay less than you owe the creditor). This means you're setting yourself up for interest and fines that can be added to the balance not paid on time. This will result in additional costs for your business.

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Three accounting record risk areas to watch out for

Click here to find out how to stop account records fraud today

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The bottom line: The only way to ensure there's no strain on your company's cash flow is to avoid overpayments and underpayments when it comes to your short-term liabilities (creditors).

Be sure to also checkout this article. It contains a useful creditor management tip that'll help you avoid cash flow problems from sinking your business.

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