Accounts Payable and Cash Flow

April 13, 2006

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Along with managing your accounts receivable by improving your credit and collection techniques, sound cash flow management demands that you keep a sharp eye on your payables and expenses.

Each time you make a purchase from a supplier without paying for it at the time of the purchase, you create an account payable (a payable) for your business. Accounts payable are amounts you owe to your suppliers that are payable sometime within the near future — "near" meaning 30 to 90 days. Without payables and trade credit you'd have to pay for all goods and services at the time you purchase them.

The average payable period is the best indicator of your success in managing your cash outflows.
Our case study shows you how to calculate your average payable period.
Using your payable period to slow down outflows can significantly improve your cash flow.
The accounts payable aging schedule is an important tool for keeping track of your payables on a monthly or weekly basis.