Extend Your Payables Window

For small-business owners looking to improve their cash flow, extending the payables window can provide that crucial bridge of time needed to collect receivables and cover your expenses without having to seek a line of credit.

Your business can leverage time and improve cash flow in a number of ways, including:

• Negotiate payment terms. When ordering supplies, don't be shy about discussing pricing. Remember, an extended payables window could mean added cash flow. Consider discussing payment terms or earning discounts with your long-time suppliers. Ask if you can have 60 days to pay, even if it means forgoing 30-day discounts. Another option is to renegotiate the due dates for payables with your suppliers--instead of paying all or most of your bills on the first of the month, ask if you can set a new payment date in the middle or at the end of the month. To maintain a strong, ongoing relationship, strive to pay on time to avoid any late fees. 
  
• Partner to pool funds. Consider partnering with other small business owners to share expenses and perhaps obtain discounts for large-volume purchases. Pooling resources is a savvy way to save money and improve cash flow.  
  
  

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• Automatic payments. Create or upgrade your online bank account to automatically pay your bills. Work with your banker to ensure the online account alerts you when your balance becomes low. Paying your bills electronically not only helps track payables, but it maximizes your payment timeframe. If you negotiate payment on 60 day terms, for example, you can pay on day 59 or 60 instantly through your online account. The longer you're able to hold on to your cash, the longer you can afford to wait for your receivables to be collected. 
  
• Tighten spending. Only spend on what you really need to build revenue. Consider forgoing expenditures for equipment, office space and other extras that may amount to wants rather than needs. If you have to buy equipment, consider buying used equipment or rent equipment for the short term.  
  
• Reevaluate accounts. Review your accounts list. Is there business you've turned away in the past because it was ‘too small'? No business is too small in today's environment, provided it generates a profit.

By extending your payables window, sharing expenses with other business owners, creating/upgrading an online bank account to ensure prompt payments to suppliers, tightening  spending and reviewing your accounts, you can help increase your company's cash flow and bypass the need to rely on additional credit to keep your business flowing smoothly.    

This column is intended to provide general information about how to extend a business' payables window and does not represent specific products available through Union Bank.

Joseph Benoit is the small business banking executive for Union Bank, N.A. Visit www.unionbank.com for more information.