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Managing Payables

manstandingonmoney32149463.jpgBusinesses must establish relationships with suppliers and they must pay their suppliers within the set time frame or face large fees. Quite often the fees will cost more than the supplies and some businesses find themselves looking for a small business loan just to cover the cost of their payables. Managing payables is a key component of maintaining proper cash flow. Businesses that are in the expansion phase often over-extend their payables and they can wind up in a lot of trouble. Always keep an eye on your expenses and do not assume that you can boost your sales quickly to make up for the higher payables.

If your sales are slowing and your expenses are starting to get bigger and bigger, it is time to gain control of your payables before it is too late. It is important to examine all of your expenses to determine if you are spending your company money properly.

Make a list of all your accounts and the payment terms. Most will be due as a Net 30 or Net 15. Some companies are lenient and they allow you to pay within 60-90 days. Do not pay your bill early unless you will receive a discount for doing so. If you can wait up until the day before it is due, you will be able to keep more cash available for emergencies. Avoid this advice if you are paying interest on the invoice. Normally credit card statements are what you need to watch out for. The interest is compounded daily so the sooner you pay your bill, the lower your monthly interest charges will be.

Avoid late fees. Most companies are not forgiving with late payments and they will give you a harsh penalty. To avoid paying your bills late, enroll in automatic bill pay. This will ensure that the money is taken out on the day it is due so you can continue to collect interest on it in your bank account until it is paid to the vendor. If you can remain current with your vendors, you will be able to receive discounts on future orders and they often throw in some bonus materials in your orders if you remain with them for a long time.

If your company is experiencing cash flow problems, contact your suppliers and ask to pay a partial payment or skip a payment for the month. Suppliers are normally forgiving if you contact them before you fall behind and most of them are willing to work with you to help you re-gain control of your cash flow.

Review your vendor's payment terms before you order materials. This will help you plan for future expenses and economic hardships. If you choose the supplier that divides payments into 90 day terms, you will have an easier time meeting your financial obligations than you would if you chose the supplier that bills everything as Net 15. Knowing the payment terms can also help your cash flow situation when you are trying to decide between two companies that offer the same product for a different price. While one company may offer it for $250.00 and the other offers it for $265.00, you need to figure out which one will allow you to split up the payments in case you do run into hardships.

Lastly, always find out the return policy and shipment delay policies of your vendors. This information will help you pick the best supplier to match your company needs and it can help you sell your products in a timely manner to keep your cash flow positive and properly manage your payables.

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