Bookkeeping Horror Stories # 1 - Anna Karenina and Overdue Bills

Hello all, and welcome to the official blog of Column & Post! 

The goal of Column & Post is to help small business owners focus on what they do best - running their business. I handle your books so that you don’t have to, which gives you back your time.

But is that the only reason to hire a professional bookkeeper? Saving time?

Absolutely not! 

At Column and Post we offer your small business professional quality bookkeeping. And while this saves you time, bad bookkeeping is far more than just a time waster. In fact it is an existential threat to your business. It is no exaggeration that bad bookkeeping can turn your dream of running your own company into a nightmare.  

As a business owner, you may already have some idea of the pitfalls of bad bookkeeping. But let’s explore the topic in detail. Afterall, failure is instructive to success. But we can’t cover every failure in one blog. We must keep in mind the Anna Karenina principle and realize the scope of our task.

What is the Anna Kaernina principle? For those unfamiliar, in his novel Anna Karenina, Leo Tostly wrote the following:

“Happy families are all alike; every unhappy family is unhappy in its own way.”

Though he wrote of family dynamics, this memorable line provides insight into a much broader truth: there are far more ways for an endeavor to fail than to succeed. Therefore, in this Bookkeeping Horror Stories series, we will go over one disaster at a time, selecting a bookkeeping failure, exploring how it might happen and why, and examining the consequences. 

In this entry we will not focus on one specific horror story, but instead cover multiple related problems that a business can encounter. Though identifying information has been omitted, I’ll be sharing real examples of horror stories I’ve encountered in my career. 

But reader be warned…

Things are going to get spooky. 

Accounts Payable Gone Wrong 

For our first tale of terror, let’s cover perhaps the most obvious consequence of bad bookkeeping: overdue bills.

I surely don’t need to explain the importance of paying bills on time. Any experienced business person should understand the damage it can do to your operation. And yet so many businesses end up with overdue bills. Why?

It could be simple oversight in some cases. We all make mistakes. But we can put systems in place so that a single oversight won’t have too much of an impact, if any. So aside from simple oversights (ie: What day is it? Oh crap, I thought it was Tuesday!), how do we get overdue bills?

Bill Terms

One way is that people may misunderstand when a bill is due. Any bill should have terms that say when a bill is actually due. These can be exact dates, but they can also be terms like “NET 30”, “NET 15”, or “Due on receipt”. Some people misunderstand these terms, or even misinput them into QuickBooks and don’t catch the error. Some may open a bill and see “NET 15” and think that means they have 15 days to pay it. 

Wrong!

NET 15 means that payment is due in full 15 days from the bill date. Any bill sent to you should have a bill date in addition to terms, and this is the date the terms start from. And note that NET 15 means 15 days, not 15 business days! So if the 15th day falls on a Saturday, and you are planning not to work over the weekend, then you’ll need to pay by the 14th day in order to remain current. 

You might be asking if this means that “Due on receipt” means that a bill is automatically overdue when it is received. Well, technically, it would mean that payment is due on the same day the bill is received. But realistically this is just a company’s way of indicating that something should be paid as soon as possible. 

Personally, I don’t like sending out invoices with “Due on receipt” terms. This is because they will show in QuickBooks as overdue the very next day, which can clutter up your accounts receivable reports and make it hard to identify invoices that are truly past due. But that is a topic for another time.

For now, let’s get back to terms. As I said, in the case of NET 15, the vendor must receive payment by the 15th day. That accounts for delivery time too. So if your payment method may take up to 5 business days to reach its destination, it is your responsibility to make sure that payment is sent at least 5 business days prior to the due date. 

Of course none of this means anything if the bill isn’t received in time. Sometimes companies have inefficient processes that delay a bill from getting where it needs to go. Maybe the mail isn’t picked up as often as it should be, or it passes through the hands of multiple parties that it doesn’t need to, or it is sent to an unmonitored email address. As a bookkeeper responsible for accounts payable, I personally have had bills delayed so much that by the time they reached my desk, they were already overdue! 

Bills may also become overdue because a payment somehow failed. For example, sometimes payments are sent to the wrong place. Did you know that some companies, even brick and mortar businesses, will request checks to be sent to a different address than listed as their place of business. With idle assumptions, you can end up with late charges on a bill you thought was already paid. 

Speaking of late charges, let’s talk about a true nightmare scenario: late charges on late charges. 

Yikes!

Avoiding Late Fees 

Each business that charges late fees should have a contract outlining the terms of their late fees. Depending on these terms, failure to pay a late fee in time may incur additional fees. 

Similar to this scenario is the ever-increasing bill that goes up between the time you get it and the time you pay it. This is best exemplified by the infamous impound lot. If you’ve ever had a car towed, you know that getting it back is such a pain partly because it has to be recovered immediately. For every day that it spends in the lot, the more they will charge for you to get it back. These types of situations must be handled quickly and correctly, or the charges will keep piling up. 

Now that we’ve covered overdue bills created by confusion and mistakes, there is a final reason for overdue bills that needs to be addressed: a lack of cash. 

Insufficient Cash Flow 

Cash flow problems can hinder a company’s ability to pay bills in a timely fashion. When resources get scarce, then business owners have to make tough decisions about what they can afford to pay now, and what they might have to be late on. 

While this kind of problem can result from insufficient sales or unforeseen expenses, it is important to understand that even profitable businesses can end up with insufficient cash to pay the bills. This can result from poor planning, processing delays, and other issues. 

Perhaps the most common reason I encounter for insufficient cash flow is collections problems. Failure to collect your money from customers in a timely fashion can kill your business. A major cause of collections issues is… you guessed it, bad bookkeeping. So how can you ensure that collections run smoothly? We’ll discuss this in the next installment of Bookkeeping Horror Stories.    

In the meantime, remember that bookkeeping doesn’t need to be scary. If you want to keep your small business on the path to success, then you can always reach out to Column & Post. See the contact button below and set up a free consultation today!