Paying on Accounts Payable - the final step in Cash Management
Saturday, December 11, 2010 at 11:59AM
Part Four... Remember that how you pay your Accounts Payable also will effect Cash Flow.
Paying Accounts Payable is an art form in most small companies. Trying to pay on time when money is tight gets to be an excercise in balance each month.
As money is collected, the process of disbursing money is just as important. There are items that just have to come first on the list each month, like rent , electric and payroll. Spreading around the joy to companies that provide you cost of goods are a must also.
First, I would recommend that you set a budget each year. Most companies wait too long before they realize they should have gotten rid of Johnny a year ago- and now they are in a negative position. There are some very hard decisions to make about what is necessary and what is just fun. Maybe there should be less visits to the local restaurants at lunch in favor of paying a bill. Having a viable business model means you can project revenue and expenditures in advance.
As you disburse, please keep in mind that sometimes you can be creative. Maybe you can't pay the full amount- but you can afford to send a 1/2 payment. Your vendor may not like it- but he also will be happy to see you are making an effort to pay the bill.
Try paying for some items on a credit card, then take the early pay discount to reduce overall spending. I have several clients this is working beautifully for using the American Express Plum Card. I'm sure there are others like this now. Also- don't forget about the points you can accumulate and use for GiftCards for your employees holiday gifts.. Just like a bonus- but you didn't have to spend anything extra to get them.
Need to use your line of credit? Snowflake. I discussed this in the early part of the year. Send small payments to your creditor to free up space on a credit card or credit line. Or do it if you don't like having a large bill at the end of the month you can't manage.
Payroll truly is one of the biggest draws of cash. Could outsourcing some of what is being done in-house save money? Could this lead to smaller rent if you could replace a whole department like this? As a owner of an outsourcing company, I can attest that this works very well for some clients. They get experts for a portion of the price they would otherwise have to maintain. Also, this may be the way you can grow larger, take in more revenue, but keep costs low.
If you have bootstrapped into your present company and have large credit card debt, it might be time to visit the Small Business Administration for a loan. You must be a viable company with some history, but they do have money to loan in the right circumstances. Getting one loan payment instead of many would help with cash flow immensely- as long as you don't reuse the cards.
Use every advantage given in your approach to Accounts Payable. Whether that be asking for longer terms, early pay discounts, paying in smaller increments, or reducing bills by cutting back.
I hope this series has helped by reminding you of the opportunities possible.
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