Dear Karen: Our business always has a backlog of payments due. How can we cut it?
Answer: Offer incentives to decrease collection time. You might try giving a 2% discount for payments received within 10 days of invoicing, said John Formento Jr., an analyst at Sageworks, a financial information company. Examine your customers' payment history and contact slow-paying customers to work out a schedule. "If necessary, decline further credit offerings to them," Formento said.
You can also free up cash flow by making your own payments on the due date, not early — unless you get a discount. "This will keep cash on the balance sheet as long as possible, while still ensuring that bills are paid," Formento said.
Another way to lower accounts payable is to procure inventory, supplies and equipment from a single vendor and arrange a volume discount.