Be efficient in your stock orders.

• Order what you need for a fixed period of production and to make the most of bulk discounts.
• Look closely at bulk discounting and understand whether repeat orders are more cost effective than warehousing costs for stock that won’t be used for a long time.
• Don’t hold on to old stock – it costs to store stock that you don’t need. If you don’t have plans for it then try to convert it into cash by selling it.

Take full advantage of the payment terms of creditors and suppliers.

• If your agreements require you to pay in 35 days don’t pay in 10. It’s better to keep the cash available in your account.
• Use payment methods that allow you to make payments as late as possible whilst meeting agreed terms, i.e. electronic funds transfers.

Look closely at your supplier relationships:

• Carefully review both payment terms and price when choosing a supplier – you may find that flexibility is worth more to you in the long run than the cheapest price.
• Look closely at early payment discounts. Your cash may be worth more to you in your bank account than you would save by paying ahead of due dates.
• Keep the lines of communication open so that if you have a cash flow issue that might require a late payment you can talk to them about it and see if it’s possible to arrange one-off extensions.

 

This article was kindly supplied by Fifo Capital; New Zealand’s business finance specialists. To lean more, visit their website here.