One of the major causes of poor cash flow is the timing and management of business spending, which includes your agreements with suppliers. To maintain healthy cash flow, it’s crucial to implement spending controls and review supplier terms regularly.
Do You Have Spending Budgets?
Creating an annual budget before the start of the financial year is a best practice for any business. However, it’s equally important to ensure that team members responsible for purchasing are operating within their department budgets.
Establish clear controls to prevent overspending, such as approval processes and regular budget tracking. These measures help keep expenses predictable and manageable.
Review Your Accounts Payable Process
Take a moment to evaluate and document your entire accounts payable workflow—from ordering to payment. Key questions to consider include:
- Supplier Terms of Trade: When was the last time you reviewed the payment terms and prices set by your suppliers?
- Negotiation Opportunities: Are there discounts for early payment? What are the consequences of late payments?
- Payment Controls: What processes are in place to ensure supplier payments are made on time, allowing you to take advantage of prompt payment discounts?
If you’re struggling to pay suppliers on time, it may be a sign that you need to free up cash elsewhere.
Supplier Pricing Evaluation
Regularly comparing your current supplier prices with competitors can reveal opportunities for savings. Consider factors such as delivery charges, payment terms, and available discounts. Strong negotiation and careful evaluation can lead to better pricing and more favorable terms.
Beyond Cost Savings
In addition to controlling expenses, a well-managed accounts payable process minimizes the risk of fraud and human error, maximizes discounts, and builds strong relationships with suppliers.
If you’re looking for tailored advice on managing cash outflows, talk to us about a Cashflow & Profit Improvement Meeting. We’ll help you implement practical strategies to optimize your accounts payable processes and improve cash flow management.