How accounting errors can hurt your business’s cash flow

How accounting errors can hurt your business’s cash flow

Positive cash flow is the lifeblood of any business and an accidental error in accounting has the potential to hurt your company’s cash flow and potentially even disrupt your near-term plans. If your organization isn’t currently utilizing AP automation in your accounts payable department, it may be worth investigating to lower the risk of accounting errors resulting in cash flow problems.

As human beings, we’re never perfect and aren’t expected to work without making any mistakes. While human nature isn’t something we can easily change or adjust, one of the best improvements you can make in your business is to determine how a mistake will never happen again in the future and making the appropriate adjustments.

By learning from your mistakes and accounting errors, your company will begin to become more resilient and able to withstand hits to your cash flow in case any errors, whether accidental or purposeful, occur.

Read on to dive deeper into some of the most common ways accounting errors can hurt the cash flow of your business, and come up with ways you can act ahead of time to prevent these errors in the future.

Cash flow disruptions due to accounting error

As previously mentioned, cash flow disruptions due to accounting errors aren’t very pleasant when they occur, but can be an excellent learning opportunity to prevent that type of situation from ever happening again.

Below are some of the ways accounting errors can hurt the cash flow of your business, and what you can do about it by implementing solutions such as AP automation software.

Delays due to easily-avoidable accounting mistakes

Accounting software is an absolute must these days. It allows your accounts payable department to capture the most important revenues and expenses in your company, and it performs all of the required forecasting and cash flow calculations ahead of time.

If you don’t use reliable software for your accounts payable calculations and experience accounting errors, your business may unexpectedly run out of funds to pay your suppliers, resulting in a sudden “cash crunch.”

Lack of cash from not updating the books frequently

Similar to the “cash crunch” we discussed previously, when you don’t update the books frequently, you can be left with a sudden shortage of cash in your business. When there’s a cash shortage, you might not be able to meet payroll and compensate your employees, or you may have to delay certain scheduled tasks or forgo business investment opportunities.

Remember to let your team know that the accounting books of your company should always be in “ship-shape”, otherwise the potential for sudden cash flow shortages and delays grows exponentially.

Cash flow issues caused by mixed finances

While this doesn’t usually apply to larger enterprises or organizations, startups and small businesses have to be careful about how they set up their business structure and how they organize their accounts.

Many sole proprietors don’t have a separate business bank account, although they should. Keeping your business finances separate from your personal finances allows you to quickly get a picture of your business’s progress and come up with a plan for improvement.

Using Rossum to prevent unnecessary accounting errors

Experiencing cash flow issues in your company as a result of accounting errors can happen to anyone, but it is an avoidable situation if you know what you must do to keep your cash flow in check and your accounting books updated.

Now that you know how accounting mistakes can lead to business delays, a lack of cash from not updating the books frequently, and even a number of cash flow issues that could be caused by unstable business finances coupled with poor planning, it’s important to discuss ways to alleviate accounting issues.

To reduce the number of accounting errors and prevent any cash flow disruptions altogether, you can contact the Rossum.ai team today for a personalized consultation about how we can help your business through AP automation.

The Rossum mission is to automate paperwork around the world and use machine learning and the latest OCR technology to quickly capture, understand, and classify important business documents. 

It’s time to place more value on your time and think about how many countless hours are burned on a daily basis when it comes to working with accounts payable or accounting. By ensuring accuracy in every accounting statement well in advance, your business may be able to avoid all of the cash flow issues mentioned above.