One way to extend your cash runway is to get credit from your suppliers. If you’re selling a product then whoever supplies your product, or the component parts of your product, are an obvious target. But you can look at every discretionary supplier, like your PR company, for example, as see if there is an opportunity to negotiate credit terms. It’s very important.
The crucial thing is to pay on time. If you’ve negotiated 10-day payment terms, then pay 10 days after you’ve received the invoice from your supplier – not 9 or 11, but 10. On the dot. And send your supplier an email saying that today you have paid their invoice.
In the same way that your receivables list gives you a snapshot of the money you’re owed from your customers, if you’ve given them payment terms, it’s good to have a payables list that you can also review on a regular basis.
Your payables’ list may include the following:
Amounts that you need to pay in the near-term. If there are a lot of these you can categorise them into, say, payment due in 1 – 5 days, due in 6 – 10 days, due in 10 – 30 days, due 30+ days. This will give you an understanding of when the cash should go out.
Amounts that are due for payment now.
Amounts that are late. They should have been paid but are overdue. Again these can be further categorised into 1 – 5 days late, 6 – 10 days late, 10 – 30 days late, 30+ days late and so on – Holy crap!
If you run accounting software, then be sure to put the payment terms in the system so you can get an up-to-date payables’ list anytime. Otherwise you’ll need to look through each outstanding supplier invoice and figure out the date on which payment is due.
Don't forget the other things that need to be paid out on time - like salaries, PAYE & NI, VAT, rent, utilities, interest, bank charges and so on.
Review your payables regularly and be very proactive with your suppliers, particularly if you are going to be paying late. If that's the case, phone them ahead of the due date and ask them to extend to a date that you know, for absolute certain, you can pay on. Most suppliers who have given you terms will appreciate the advance notice, but will be watching carefully and may reduce your credit terms next time - just to be safe. But never, ever keep committing to a date and then miss it. Late, but reliable is kind-of OK, if that’s what it needs to be; late and unreliable is the first step towards a winding up order!
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