Most small business owners realize that paying company debts is just as important as collecting accounts receivable and that these debts need just as much management.

What business owners may not realize is that they can actually have a surprising amount of control over how and when company debts are paid, giving some advantages.

First, it’s important to adopt good internal controls for the payment of your bills. Reconcile both purchase orders with the invoices and statements from vendors, as well as accounts payable subsidiary ledgers with the general accounts payable ledger.

Once those controls are working, company debts can be effectively managed in the following ways: here are a few ways to effectively manage company debts, maximizing cash flow:

• Keep as much money in the bank-earning interest-as possible. Consider using idle cash to pay down any lines of credit.
• Review and update cash-flow projections. When cash-flow is improved, there might be better terms on open lines of credit, and if it’s a less healthy projection, the banker could increase the line of credit without increasing the rate.
• Consider borrowing against the cash values of executive life insurance policies to reduce net interest cost. Life insurance loan rates often are generally lower than bank rates.

As for suppliers, remember that the more business they get from a company, the better the payment terms should be.The goal is to widen the spread between sales revenue and payments, to maximize cash balances at a very low cost. Keep in mind to:

• Use every possible discount. Maintain a calendar-style schedule to ensure payments are made within discount periods.
• Stretch payments to their latest date.
• Negotiate extended terms when possible and appropriate. Vendors are often willing to help their best customers.

For more information about maximizing cash flow, call Filler & Associates.