HOW TO GROW SALES 3: Synergy between accounts receivable & accounts payable
One of the most effective ways of stimulating sales is by injecting a credit program into your sales program (i.e., set up an accounts receivable). If / when your credit program / accounts receivable results in a growth in Revenues as expected, your Cost of Goods will also grow in step with your Revenues.
In most businesses (specially where goods are produced), the greater portion of Working Capital goes into Cost of Goods Sold. One of the most effective ways of reducing the need for Working Capital is through suppliers’ credit or your accounts payable. It would be a great advantage if you were able to establish relationships with your suppliers where you can delay payments (say, 30 or even 60 days) with only a minimal increase in price or, better still, without any additional cost. In this kind of arrangement, you can actually pay for your supplies from the proceeds of your sales or collections –thus, lessening the pressure on your Working Capital requirements.
In order to avoid undue pressure on your cash (as the increase in Sales pushes up your Cost of Goods), you have to make sure that your accounts receivable & accounts payable are synchronized. You have to make sure that the number of days in which you collect your accounts receivable (i.e., credit sales) is always less than the number of days in which you have to pay your suppliers (i.e., suppliers’ credit).
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Tags: accounts payable, Accounts Receivable, credit sales, suppliers' credit, synergy, working capitalRelated Stories
POSTED IN: Accounting Concepts, Accounting for NonAccountants, Accounts Payable, Accounts Receivable, Best Business Practices, Cost of Goods Sold, Small Business Finance, Success Accounting
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