====== Supplier Payments ======

{{keywords>start-ups, entrepreneurship, Offtoa, cash flow, suppliers, vendors, accounts payable, average days outstanding, terms}}

====Help with This Page====

This is the screen where you can describe the details of how you will pay your suppliers.

Many small companies fail to plan their cash flow. Imagine two companies, Company A and Company B, which are in identical businesses with identical revenues of $10M per year and annual profits of $1.5M. The only difference is that Company A must pay its suppliers immediately and its customers pay their bills within 30 days of purchasing products and receiving invoices from the company. Meanwhile, Company B must pay its suppliers within 30 days of receiving supplies and its customers pay their bills online immediately upon ordering. Due to these cash flow differences, Company A could require more than $1M more funding than Company B.

Fundamental to the success of companies is their cash strategies. You need to specify values for two key assumptions on this screen:

  - What are A/P at the beginning of the current (i.e., at the beginning of the modeling period) fiscal year? This is used just to get the first month's A/P on the balance sheet correct. If you are starting <php>echo $conf['comp_name'];</php> at the very beginning of your company's existence, this will be zero.
  - Average days outstanding for your payments to vendors/suppliers (aka A/P). On average, how many days will your vendors and/or suppliers allow you to pay them? When computing this value, use a weighted average, weighted by the dollars paid. So, for example, if in a typical month you purchase $50,000 from retail stores, which demand cash payments immediately (net zero), $20,000 from a component supplier with whom you arranged "net 30" terms, and $20,000 from another vendor with whom you arranged "net 60" terms, you should state the assumption as 20 days, i.e.,

($50,000 × 0 + $20,000 × 30 + $20,000 × 60) / ($50,000 + $20,000 + $20,000) = 20.

Here is what the screen looks like:

{{ :using-offtoa:assumptions:financial-assumptions:supplier-payments.png?800 |}}

====Additional Questions:====

**[[:faqs:supplier-payments:AP-negative|Can my average days outstanding for payments to vendors/suppliers ever be negative?]]**


**[[:faqs:balance-sheet:techniques-lengthen-AP|What techniques exist to lengthen average days outstanding for payments to vendors/suppliers?]]**


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