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Working with suppliers when cash flow is tight.

I have lived through this predicament before, but any time I encounter this I am always frustrated. The byproduct of fast growth has resulted in a cash flow issue - not uncommon in many companies. My predicament is the way we choose to pay suppliers, or I should say my boss chooses. Instead of choosing based on urgency and company need (client based before office supplies), we play one supplier until they cut us off and then make a payment. My insides are not doing well with this. In my position as Controller I cannot tell the suppliers that I am not really in "Control" of the choices - that would be a fast job ender. I also can't answer the question 'When' if asked. I spoke to my boss about this and he understands and tells me he wants to work on this, then he turns around and requests large checks from my AP clerk which results in my having to cut someone else off my check list for the next time around. The most recent example is his 'need' to get the landscaping done so things looked pretty outside. The check for $20K resulted in our not getting a few other checks out the door and we are now trying to find new suppliers for things. I think this is temporary based upon my cash flow forecasts (up to 6 more months). However, the current situation is really hurting my morale. I no longer answer my calls as I know most of them will be from people looking for their payments, and I have no way to answer them. Does anyone have any suggestions?

Answers

John P. Hart
Title: Vice Pres - CFO
Company: Nova Pressroom Products, LLC
(Vice Pres - CFO, Nova Pressroom Products, LLC) |

One thing you have to address - for you to do your job properly the "boss" can't go around you to the AP clerk. Otherwise nothing will change. Until you leave.

Do you prepare a real-time AP report for the boss? You should both go over that, and jointly decide what/who will get paid and when. Then stick to the schedule. That will create credibility between you two, and with the suppliers.

Barbara Beaudin
Title: CFO
Company: Foundation Radiology Group
(CFO, Foundation Radiology Group) |

Perhaps if you present another solution to your boss you can better control the situation. I have, in the past, had great luck making partial payments to all vendors. This doesn't work well with standard monthly payments (such as rent and utilities), but for professional services, one time purchases, etc. you simply pay them partial payments every 2-4 weeks. If you have a primary vendor that you pay monthly for a significant amount, start paying them weekly - but pay less than 25% of the bill. If you pay them 15%-20% each week for a month or so, you have stretched the payment cycle without too much pain for them. Then, start paying them at 25% once you have them stretched to 45-60 days. Your vendors don't want to lose a client, but need some assurance of payment. In addition, having a 13 week rolling cash forecast that includes AP details allows you to manage for fluctuations in cash receipts on a real time basis - don't just use a flat amount of what you have available in the forecast, have a plan.

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

John and Barbara have great suggestions, in fact probably the best for the company. However, if your boss is insistent on this type of behavior you may want to look into getting a line of credit. Maybe when the bank starts charging and withdrawing thousands of dollars in interest it will change their mind.

There again, if your boss sees the line of credit as a way of cash advance it could lead to other issues.

Is it possible to accelerate A/R collections from your customers?

Anonymous
(Controller) |

Thank you all for the suggestions. We have a significantly detailed rolling cash forecast that takes into account our purchasing needs based on opportunities and actual sales, plus the costs of operating. I make all the AP selections and then present the detailed list broken out by category (utility, rent, client needs, monitoring, prof services, supplies, etc). He sits on the checks until someone comes to tell him we have been cut off. The biggest issue is with our purchase of items for our customer. It costs an average $145 per unit to send to an opporuntity (via fedex no less) and then we have to wait for the end of a 90 day free introductory period before we expect to convert 50% of these opportunities to revenue. Even with the revenue, our ROI is roughly 8 months. The capital outlay is what is getting us. We have maxed out our line of credit and roughly 50% of our customers are medicaid related - so we can only do so much to speed up collections. For many of the rest of our clients, the elderly, we can't get too many of them onto automated/credit card payments as they don't trust these methods.

I do see the light at the end of the tunnel, but I also really appreciate the needs of my suppliers. I think I have a plan that works to keep our suppliers reasonably within their terms if my boss would only follow it. He is a salesperson, so to my face he says he 'gets it' and then turns around and submits his own items, or sits on items we have on qeue to get paid. In the meantime I know before I open my mouth that I might get caught in a 'lie' if I tell someone when I think they will get payment.

James Xu
Title: Cost Accountant
Company: Landmark
LinkedIn Profile
(Cost Accountant, Landmark) |

A salesperson can never understand, or rather not care to understand what we accountants do. it's really just a matter of communication or persuation of what is more important (hidden value of SRM) what is less (to make people happy most likely his own boss).

to me, the real problem lies on the revenue side not AP side, based on your description of the situation. It cost too much time and money to get to your potential customer, which can't even guarantee a sale, or a fair chance of sale. Maybe it's time to think about other ways in generating your leads, a faster and more cost effective way (social media, road show etc) to increase your converstion rate to sale. That's what your boss should really be focusing on instead of dictating on where you suppose to manage and make decision for the best interest of your company as a controller.

Ken Stumder
Title: Finance Director / Controller
Company: Ken Stumder, CPA
(Finance Director / Controller, Ken Stumder, CPA) |

Reading this thread I particularly gravitated to your response James. Maybe shaving the free 90-day introductory period down to 30 or 60 days is an option as well?

Brad Luke
Title: SVP
Company: Software as a service
(SVP, Software as a service) |

This is never easy but you need to have a heart to heart with your boss. Your boss is putting the company in jeopardy and if he does not support you on a simple request such as this then I am sure more problems will arise in the future. Tell him you understand his desires, but that when he does not keep you in the loop then you have no way of helping him achieve his goals. Over the long haul I always advice everyone to work with their boss and be honest, however if this does not change based on repeated conversations you may want to look at other opportunities as I am sure his lack of teamwork spills into other areas.

Robert Miller
Title: CPA
Company: Private
(CPA, Private) |

Although another conversation with your boss probably can't hurt, it might be unrealistic to expect him/her to really change.

Ergo, along with the helpful suggestions above, maybe you can begin to expect the unexpected in your own A/P planning.

I especially like Barbara's suggestion of more frequent partial payments.

Hang in there!

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I lived through this for 10 years.

As other's said, I made it very clear (one owner knew how to write checks, the other knew how to use his AMEX card). That no check can be written without my knowledge, since cash flow was almost always extremely tight (our current ratio for 9 out of the 10 years was below 1:1).

Other than that, I created a dialogue with vendors and a payment schedule that I could live with, lived with it (in other words, their terms may have be Net 30, but I paid on the 65th day - always). This gave me breathing room and if I was going to have to delay a payment, the vendor knew a week in advance, not a week after it was due.

I created good will and mutual respect and managed the business when we had a current ratio of .76 without having any services or suppliers cut us off.

David Collins
Title: CEO
Company: Glentyde Capital Advisors
(CEO, Glentyde Capital Advisors) |

"The byproduct of fast growth has resulted in a cash flow issue - not uncommon in many companies."

...true enough, but I'm sure many companies would love to have the problem of pushing against the upper bounds of their SGR ('sustainable growth rate').

Any possibility of at least partially pacifying some vendors and buying a little leeway by showing them the growth numbers? Vendors want to hitch their wagons to growth customers.

The implied message that might soften a vendor's hardball stance: "Hey, at this pace it looks like our purchasing volume will be about 35% greater in 9 - 12 months than it is right now." That's a juicy plum a vendor would be reluctant to give away to a competitor.

Best of luck with it.

Topic Expert
Karoline Mello
Title: Director, FP&A
Company: Apollo Group
(Director, FP&A, Apollo Group) |

Have you tried producing cash flow statements for your boss so he must deal with the reality of the situation? It seems like your expert juggling skills have bailed out the organization more than once, so taking money out means you will toss around a few suppliers in the air. You can make it work. Until you stop and have monthly cash flow and balance sheet reports to executive management so the issue is dealt with appropriately.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

Karoline - Bosses who only think of their own draw/salary regardless of the effects on cash flow aren't going to be swayed by reports.

As long as the IRS/Taxing Authorities are happy, the rent gets paid and the lights and phones/internet is running their happy.

It is truly a sad state of affairs...

Anonymous
(controller) |

I have experienced this in the past at 3 employers or projects, and am experiencing it now again. Face it you will not change the owners methods. I agree best to send vendor something each week, so break a large invoice into 3 to 8 pieces and send them partial weekly. Vendor will be more happy with consistent cash receipts as opposed to weeks of nothing but broken promises.

Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

You may be above your sustainable growth rate, which can result in bankrupting a rapidly growing company. If rapid growth is measured by sales dollars, it is often not profitable, disguising for a while more fundamental and ultimately fatal issues. If audited, do not sign the general representation letter.

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