Do you need to free up more cash in your operations? If so, you should take a deeper look at approaching your vendors to extend out payment terms on your accounts payables. Do you currently have 30 day terms on your A/Ps? Why not try for 45 or 60 days? According to an article on CFO.com entitled, “Six Ways to Stretch Payables“, “Often overlooked because of the relatively low status of accounts payable in finance departments, A/P thus provides an opportunity for…companies to hold on to their cash longer.”
How do you go about this? “Rather than blanketing all (vendors and suppliers) with the same request for improved terms, … divide vendors into different categories and then tailor the companies’ approach accordingly.” Not all suppliers will respond the same to a request to extend out your payment terms on your accounts payable. A large Fortune 500 supplier with whom you do a minimal amount of business won’t be as motivated to extend your payment terms as a Mom and Pop business with whom you do a singificant amount of business.
According to the CFO.com article, the vendor/supplier categories and their applicable approaches are as follows:
The “untouchables” – These vendors and suppliers have significantly more power than you as the buyer in your relationship, so you shouldn’t even attempt to get them to change payment terms.
The “squeaky wheels” – These vendors “may complain vociferously about such requests, they will in the end come to” an agreement. Therefore, it’s best to make the request to extend terms via a live, face-to-face meeting.
The “good soldiers” — These will “scream and yell and make lots of noise, but in the end they’re going to do what you ask them to do.”
The “wallflowers” – These vendors and suppliers need your “business so much that they’re in no position to refuse to come to terms.”
Click here to read the Six Ways to Stretch Payables article in its entirety.