SYNERGY BETWEEN ACCOUNTS RECEIVABLE & ACCOUNTS PAYABLE 3

AccountingSolver received an insightful comment from Mary Schaeffer, Author Controller & CFO’s Guide to Accounts Payable (John Wiley & Sons 2007) & 12 other business books, Editorial Director Accounts Payable Now & Tomorrow (http://ap-now.com/blog/):

“I just read a post on another blog recommending payment stretching as a way of improving cash flow. And, to be honest, it will do just that – at least temporarily.

But the pundits that recommend this tactic overlook a few things. First, it will annoy the you know what out of your suppliers. They have no interest in becoming your banker – they are worried enough about their own cash flow. And, if you happen to also sell to them, they will take similar action. After all, what’s good for the goose is good for the gander.

But there is an even more insidious problem. Most suppliers, if they have not been paid in 30 days will issue a second invoice. This may or may not be marked Copy or Duplicate. And, a small number of these duplicate invoices get paid. So, all the savings from the payment stretching are given back (and usually more). So, much for payment stretching improving cash flow!

I should note that there are times when an organization will have no choice but to stretch payments. If cash is tight then delaying payment may be the only alternative. In those cases extra care should be taken to ensure no duplicate payments are made.”

Mary Schaeffer’s observation is one very important reason why there should be synergy between accounts receivable and accounts payable.

Your Days Receivable should always be less than your Days Payable so that you are able to pay your bills on due date and you don’t fall into the quagmire that Mary Schaeffer warns about.

graphics by Ren Garcia / image from Microsoft Clipart