Making payments
How can I manage my accounts payable?
Managing your accounts payable is a crucial part of the cash flow cycle. Cash goes out of a business in 5 broad areas:
- Operating costs
- Capital expenditure
- Loan repayments
- Tax
- Profits and dividends.
Some strategies for managing your accounts payable are:
- Managing, reducing or delaying expenses
- Controlling or minimising your stock
- Borrowing to make payments.
How can I manage, reduce or delay expenses?
You’ll need to plan ahead for those periods when you know you'll be making large payments - wages, tax payments, rent, dividends, etc.
Try negotiating with your suppliers to improve your terms of trade. Perhaps you can arrange to pay by electronic funds transfer at the end of the month rather than cheque.
How can I control or minimise my stock?
Try to keep your stock levels as low as possible without impacting on the efficiency of your business. You can do this by:
- Buying some of your stock on a consignment basis
- Arranging with your suppliers to hold stock for you with the capability to deliver within a day or so of order
- Keeping good records on your stock position so you know exactly when you need to order replacement stock
- Purchasing only what you know you'll need within the immediate future - unless there are significant quantity discounts for buying volume stock
What do I need to think about if I’m borrowing to make payments?
When you borrow money for your business you need to have a plan for how you'll repay this money over time. Typically you’ll pay interest on this money and you'll also need to make repayments against the money that has been borrowed.
Remember, the most likely way to repay debt is out of profits. So you need to make sure that your business is profitable.
You can read up on borrowing options in Covering my shortfalls.
