Accounts payable turnover is the simple function of how long it takes you to pay your bills. The question is how can you improve cash flow by improving accounts payable turnover?
Not much to discuss right?
As you’ll see in the video, especially with you look at your accounts receivable turnover alongside your accounts payable turnover, you might realize just how poorly you’ve been managing this. Improving accounts payable turnover can make all of the difference.
There is a careful balance here. If you take too long to pay your vendors, they may not want to work with you. If you are paying bills faster than you need to, you may be cutting yourself short.
When you try improving accounts payable turnover, you upset someone else’s accounts receivable turnover. Some years ago when a company did this to me I chose not to work with them. That’s the risk they ran, and they lost me. They were also unwilling to compromise.
Now you have all three major cash flow levers:
- Improve Cash Flow by Improving Accounts Receivable Turnover
- Improve Inventory Turnover Improve Cash Flow
- And this one – Accounts Payable Turnover
This is where you want to focus on improving your cash flow. You manage the three levers that are available to you, and make sure that your out-flowing cash is slower than in-flowing cash.
Next we can look at the “Financial Gap.”
Then we can answer a REALLY important question:
How much cash SHOULD your business have in the bank?
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