When cash gets crunched, as happens to 37 percent of businesses facing cash shortfalls or the 75 percent experiencing cash fluctuations,1 the pinch is felt first with suppliers and vendors. If your business can’t procure the inputs it needs from suppliers, it can’t serve its customers, and sales will grind to a halt. Most owners cover shortfalls with personal cash infusions, depleting owner resources, putting the owner’s credit at risk and distracting owner attention from operations and growth.1 A better answer points to suppliers, where managing payables can effectively provide a no-interest loan to get you through a cash crunch.
#1 Pay attention to payables terms and pricing
Stretching payables starts by paying close attention to the terms offered by suppliers and vendors. Nine out of 10 business owners don’t review standard payment terms.1 This lack of oversight creates missed opportunities to hold onto cash longer. Extending payments provides a business with a short-term, interest-free loan from vendors. High-growth companies are much more likely to negotiate terms and pricing with their suppliers. 1 Other payables-stretching methods, such as implementing a delivery acceptance period on all purchases, can extend cash by delaying vendor invoicing.
#2 Remit payments electronically
Using electronic payments gives you control over how and when to pay vendors and suppliers and allows your company to retain more cash. Less than 20 percent of owners are reaping the benefits of scheduled electronic payments,1 including increased payments data visibility, improved reporting and reduced processing costs. While still second to cash payments, credit cards are growing as a supplier payment method.1 Businesses that use credit card payments can often extend their Days of Payables Outstanding – the average time from invoice receipt to payment - from a current average of 27 days1 to 30 to 45 days, holding cash in the business longer.
#3 Lean on partner relationships
Most small businesses invest in strong supplier relationships and partnerships. Working closely with your partners provides them insight into your business practices, gives them confidence in your opportunities and allows for strong, two-way relationships that help all parties through the ups and downs of cash flow variations.
When cash shortfalls happen, using your relationship capital with your suppliers can provide the cash breathing room you need. Communicating the nature of your shortfall, providing partial but stretched payments and offering to pay a bonus for a payment extension can help get you around customer loss, unexpected expenses or a slow time of year.