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Definition: The administration of a company's outstanding debts, or liabilities, to vendors for purchases of goods and services made on credit .
When you're managing a growing company, you have to watch expenses carefully. Don't be lulled into complacency by seeing sales increase. Any time and any place you see expenses growing faster than sales, examine your costs carefully to find places to cut or control them. Here are some more tips for using cash wisely:
- Take full advantage of creditor payment terms. If a payment is due in 30 days, don't pay it in 15 days.
- Use electronic funds transfer to make payments on the last day they are due. You will remain current with suppliers while retaining use of your funds as long as possible.
- Communicate with your suppliers so they know your financial situation. If you ever need to delay a payment, you will need their trust and understanding.
- Carefully consider vendors' offers of discounts for earlier payments. These can amount to expensive loans to your suppliers, or they may provide you with a chance to reduce overall costs. The devil is in the details.
- Do not always focus on the lowest price when choosing suppliers. Sometimes more flexible payment terms can improve your cash flow more than a bargain-basement price.
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