Payables are a crucial part in the cash flow cycle of any business. This is why effective payable management is important for the success of the business. Payables are the money that is owed by the business to the suppliers that it deals with. The payables are shown in the liability part in the balance sheet of the business, as the business owes this money to suppliers.
Payable managementis important for any business as if the payables are not managed properly, then the entire cash flow cycle of the business will be disturbed. However, there are several strategies which ensure that the cash flow cycle is not disturbed. These strategies, which will help in the management of payables, are:
- The first and most effective step to manage payables is to minimize or reduce the stock that the business keeps. Make sure that you have low stock levels without them impacting the efficiency of the business. This can be done by buying the stock on consignment basis so that there is no extra stock on hand with you. Also, you could arrange with the suppliers to hold the stock and deliver within a day or two of the order.
- Another step of payable managementis that you should be able to reduce, delay or manage your expenses. For this you would need to plan well ahead of the periods, in which you will be making the payments. This could be done by negotiating with the suppliers so that your terms of trade get better.
- A tried and tested way of Payable Managementhas been to borrow to make the payments. But make sure that you have a plan on how to repay the money over time. Also, make sure that the business is profitable, since the repayments ofthe debts will be made from the profits that your business makes.
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