We're going through a restructuring and cash flow is a major issue. We're having to decide which vendors to pay and which we think can wait; the vendors are unhappy, and our DPO calculations are too low. Suggestions?

Follow

Failure to adhere to terms that you had previously agreed to is going to disturb your vendors. Arbitrarily stretching payment terms without notifying vendors will naturally bring pushback.  It is better to approach vendors and ask for their cooperation in adjusting payment terms.  Explain your objectives and persuade them of your reliability. Consider what’s in it for them. Most will probably work with you—they do not want to lose a customer. But that you will abide by the agreed-to terms is among the vendor’s expectations set at the start of the relationship.

Something else to consider is payment via a credit card—sometimes called “e-payables.” There are a few models here, but the gist is that invoice payment is made through a company credit card account; the vendor gets paid, but you don’t have pay until the monthly account statement is due, buying you extra time. Along with the timing benefit, you can also earn rebates and avoid 1099 reporting (third party payers are responsible for 1099 reporting). The vendor will have to pay interchange fees and so might want some consideration, such as slightly earlier payment, to accept payment by card.

When renewing contracts or POs, you should negotiate new terms suited to your objectives.

Whatever you do, you want to prioritize your vendors—which are you most reliant on to carry on your business? Be careful in holding invoices that could lead to disruption to your business. Do not stretch tax payments, as you will face penalties and interest.

See:
AP and Cash Flow: When Cash Is Tight
Recession-proof Your Accounts Payable Department (from a few years ago, but you may find the discussion applicable)

You also might find this of interest: Card Payments Turn AP into a Profit Center

On the flip side, is AR doing all it can to shorten DSO, and alleviate the cash crunch from that side? That does not just mean collections—as just one example, is your billing accurate and complete?

You might also wish to post your question to The AP Network’s Forum to solicit input from other members.

Have more questions? Submit a request

Comments