Accounts payable is money owed by a construction business to a supplier. The accounts payable show up on your balance sheet as a liability.
In this video…
Accounts payable for construction accounting is much the same as in other industries. But there are a few things that you can do that will save your construction business money, and ensure that you are in compliance with the IRS. In this video, you’ll learn some important principles to keep in mind when paying suppliers in the construction business.
What is Accounts Payable?
Accounts payable is money owed by a construction business to its suppliers or other vendors. It shows up on your balance sheet as a liability. Using accounts payable is part of an accrual account. Post the expense in job costs when you receive the payable invoice. To manage your cash flow, try to bill your client and receive payment before you need to pay the payable invoice.
Save Money with Early-pay Discounts
Does your supplier offer an early-pay discount? Taking advantage of those early-pay discounts can save your construction business more money than you think. A discount of 2% compounds to about 36% a year, not to 24%, as you might think. Where else are you going to earn that kind of return?
Don’t Forget the W-9
Construction payroll can be complicated, especially when you are paying sub-contractors. Some individuals or companies require that you send them a 1099 at the end of the year for tax purposes. If they will require a 1099, make sure you have them fill out and sign a W-9 form before making the payment. The W-9 is available from the IRS website, or if it’s more convenient, you can download it from the On Track website.
In the next video, you’ll learn about using ratios in managing your construction business.
Next Video: Current Ratios