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.