Reduce Receivables- Stretch Payables But Don

1
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Greg Bergman, Small Business Development Center
• Bruce Peck, SCORE-Counselors to Americas Small
  Business
• Chris Robinson, Askegaard Robinson
• ASKEGAARD ROBINSON, P.A.

2
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Profit and Loss Statement
• Balance Sheet
• Cash Flow

3
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Cash is King
• Cash is King
• Cash is King

4
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Why is Cash important
• It is used to pay bills
• It is used to pay employees and taxes
• Provides a chance to take advantage of
  opportunities
• Provides you with the opportunity to obtain
  additional cash

5
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Two ways to have more cash
• Bring more in
• Keep it from going out

6
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Balance Sheet
• Assets
• Liabilities
• Owners Equity

7
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Accounts Receivable- Asset
• Accounts Payable- Liability

8
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Make a Sale-850,000
• Average days to collect is 30 days
• Accounts Receivable are 70,833

9
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Increase sales by 10
• Sales 935,000
• Receivables go to 77,916

10
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Instead raise collection time to 45 days
• Accounts receivable go to 104,795
• An increase of 26,879 !

11
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Sales go to 765,000
• Accounts receivables collection 45 days
• Accounts receivable 94,315
• A 23,482 increase

12
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Accounts Payable can save cash in the short term
• Need to watch cost of carrying accounts payable
• Consider how critical vendors are
• Do not treat withholding trust accounts the same
  as your vendors!

13
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Assume cost of producing goods 50
• Half COGS is material, half labor
• You pay in 30 days
• Accounts payable are 17,708

14
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Stretch those payables to 45 days
• Accounts payable to 26,200
• You have 8,492 in additional cash
• Not a long term solution

15
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Using accounts payable to preserve cash is only a
  short term solution.
• Managing accounts receivable well is very
  important to maintaining the cash position of a
  business
• Next we Bruce will talk more about how that is
  done.

16
Reduce Receivables-Stretch PayablesBut Dont
Wreck Your Credit

• Greg Bergman, Small Business Development Center
• Bruce Peck, SCORE-Counselors to Americas Small
  Business
• Chris Robinson, Askegaard Robinson
• ASKEGAARD ROBINSON, P.A.