Working the Accounts Payables

Last week I posted three blogs about cash flow.

As a 18 year veteran in the banking and finance world, I believe controlling cash flow rather than letting it control you can be the difference between success and failure. I have seen this belief play out many times.

My plan today was to provide links to a number of good cash flow forecast templates I believed I would find in the public domain that didn’t require copyright permission to use them. I found a couple that were average, but I haven’t found anything that is really superb, so I am going to change my plans for this week a little. I am going to design a 13 week cash flow forecast in Microsoft Excel format that I believe to be the best for use in a business that is operating, and needs to watch cash in / out on a weekly basis. I will make it available to readers by Friday. I will link to the forecast models that I found online that will work really well for a start-up business that needs to make sure it has enough working capital for the first year.

If you know or use a good template that can be distributed freely, email it or post the link to me and I will include it in my post on Friday.

I have searched out “for pay” programs that calculate and forecast cash flow, but haven’t been impressed enough with them to post / recommend them. I am still looking though. Some of them are quite expensive and I believe a business owner with average MS Excel skills can build their own, customized to their own business needs without paying for an expensive program.

Today I am going to discuss one of the three important concepts of managing cash flow, working your accounts payable, since one of the ways to improve cash flow is to decrease the speed in which you pay your payables.

Negotiating terms with trade vendors: Every industry varies as to customary payment terms for inventory. Make sure you know your industry’s customs. I have a client in the wholesale wine business and while many of their inventory payables are due net 30 or 60, a great many will give him what are called, “depletion terms.” Simply put, when he sells the inventory, he pays for it.

Industries that require a pretty large outlay for inventory often give dating terms, meaning a business pays for it in installments. A typical dating terms arrangement is first third due net 30, second third due in 60 days, and third installment due in 90 days. This is something you should ask if you are taking on a new inventory line and will have quite a bit of money tied up in it.

If your business is suffering a short-fall of cash and you have a really good relationship with a main supplier, something you can consider is negotiating your short-term trade payable into a note payable.

My company offers free webinars on a variety of topics to any business who would like to attend. We have a 50 minute webinar planned on this topic for May 20, 2008 at 10 AM CDT. The presenter has years of experience helping companies improve cash flow by working with trade vendors. If you think you might benefit by picking his brain on the topic, feel free to register for “Working with Trade Vendors – Negotiating Discounts and Terms.

Slow-paying some of your other accounts payable will help cash flow but be careful. If it is a trade vendor, make sure you discuss it with them first. You can often negotiate a one-time slow pay if cash flow necessitates it. My best advice is to keep close contact with your vendors. Make sure the critical ones know what your plan is to improve cash flow and to get back to paying them within terms. If your plan has to change, tell them before a payment is due. Many of them understand your circumstances better than you think and will work with you. Chances are, if you are having a tough time, so are many of their other customers.

When it comes to paying other payables like electricity, phone, etc. figure out the last possible date to pay without incurring a costly penalty or being disconnected. Often, if you have a good on-time payment history, these type of vendors will allow you to arrange a payout of a particularly large bill.

Don’t be bashful about asking. All your vendors can say is no.

Communication with your vendors and key employees is important. Don’t think that your employees won’t know when you are having cash flow challenges. It isn’t necessary to share complete detail with them, but letting them know the situation in general and your plan to improve it will help their morale and hopefully keep them productive. It will also keep rumors in check.

Still, getting your cash flow forecast in place as soon as possible will let you build your plan and give you meaningful information to discuss with vendors.

Wednesday I will discuss improving cash flow through accelerated and improved collections of your accounts receivable and on Friday I will post the long awaited sample cash flow forecasts.

Remember, Cash is King!