Having dealt with the money flowing into your business, it's time to take a look at the money flowing out – to suppliers, the Tax office or HMRC in the UK and to any other ongoing creditors.
The opposite principle applies here. With accounts receivable, you need money to flow in as fast as possible, but with accounts payable, to an extent you need to slow down the flow of money out of your business.
However, this doesn't mean you should stall payment for as long as you can just on principle. By doing that, you'd be contributing to another business's cash flow problems. It's unethical and may affect your reputation, which in turn may affect your ability to do business.
Instead, there are steps you can take to stem the outward flow of cash without upsetting your suppliers.
- Negotiate longer credit terms. If your suppliers currently demand 7 days for payment, for example, ask them if they can be more flexible. Some of them may have the capital in hand to allow you more leeway, which can make a big difference to your own cash flow.
- Take advantage of generous credit terms if they are available. Instead, use the flexibility of credit terms to decide for yourself when to make payment, within your suppliers' acceptable time-frames. Having the option of delaying payment for 30 days may sometimes be useful, even if you would normally pay within 14.
- Build up goodwill with your suppliers. This doesn't just mean inviting them to lunch (although that can sometimes help) but having regular meetings to discuss your connection with them, working out how they can do more for you – and vice-versa. Being more than a client number can be useful, especially if business hits a rough patch.
- Don't build up too much supplier debt, your suppliers may be willing to extend lines of credit now, but if the winds change and they call in that debt all at once, could you pay it back? Talk to your accountant, because part of running a successful business is understanding the wider economic conditions.
“If you get into trouble, communication is key with your suppliers to ensure continued supply. Offer a payment plan if you can’t pay the lump sum.” - Sarah Stein, Miss Efficiency Bookkeeping‹ View table of contents Next page ›