We are discussing how managing your cash flow is crucial to the success of a business. In this discussion, we have dealt with accounts receivable management and inventory control. This week, we will talk about the impact accounts payable can have on cash flow.
One of the major keys to cash flow is to insure that the terms of your accounts receivable mirror the terms of your accounts payable. You do not want to be paying your vendors faster than you are receiving payment from your customers unless you have a line of credit to ease the timing difference. Developing a good relationship with key suppliers can be very helpful in this process. Negotiating for extended terms can be done if you are a valued customer. Keeping track of the business you do with vendors can be an asset when conducting these negotiations.
If you have the chance to get an early payment discount from a vendor, be careful to consider all your cash flow needs before accepting. The discount is helpful only if you still have enough money to pay rent or make payroll.