Smart retailers know that managing accounts payable increases cash flow. (see Why Cash Flow is King in Retail.) They add simple terms to vendor contracts to improve profitability. Here are five simple and prudent ways retailers manage accounts payable more effectively.
- It is a bad cash flow practice to pay every bill when it arrives. Set your timing to pay bills as they come due. Measure your accounts payable team to track their record of paying on the due date. Track variance before or after the due date as an absolute variance. (+1 or -1 is still a variance of 1.)
- Use online banking bill payment schedules to manage payables to the exact due date. Manage all vendors to pay on the next business day after when the due date is a holiday or Sunday.
- Ask for discounts from vendors for early payment. Ask for longer payable terms when taking on new products or lines from current vendors. Request a minimum of least 30 additional days to the payable terms for new items.
- After a history of consistent payment, ask for longer payables terms. Request 15-30 additional days of payable terms at every annual negotiation when you have a solid record of paying your invoices on time.
- When you are willing to pay in cash or through an instant bank account transfer, always ask for a discount. If a vendor does not offer a 3% cash discount or greater, do not pay in cash.