| In the last article we discussed cutting expenses on | | | | When considering purchasing either supplies or |
| the income side. Let's go to the opposite side of your | | | | materials, consider carefully what you need, how much |
| business now - cutting costs on what you pay out. | | | | you need and when you need them. Take a lesson |
| The first thing that comes to most people minds is | | | | from the larger companies who specialize in |
| discounts on what they buy. Trade Discounts are | | | | "just-in-time inventory" purchasing. Their plan is to |
| reductions to your bills for paying early. They are often | | | | purchase only as much as they need to fill the sales |
| written as a percentage of the total sale (not including | | | | that are in house. They do this with careful planning |
| shipping or sales tax) if the invoice is paid within a fixed | | | | and negotiating with their vendors to deliver |
| time period. I am sure you have seen 2/10,net30 on | | | | consistently and quickly. By doing this they have better |
| invoices which means if you pay within 10 days of the | | | | cash flow control, save on warehousing costs and out |
| invoice date you may take a 2% discount or pay the | | | | of date product issues. With some advance planning |
| entire amount within 30 days. | | | | and discussions with your vendors you can reap the |
| This is a standard example, however vendors | | | | benefits and cost savings used by the "big guys". One |
| sometimes use other terms. Your goal is to have | | | | expense is often overlooked. When was the last time |
| relationships with suppliers that offer you the best | | | | you took a good look at how was being spent from |
| discounts and terms. There are even some vendors | | | | your petty cash fund? Money in cash form is easily |
| that will increase their discounts and/or terms if you | | | | spent with little knowledge of where it went. Lunches, |
| have a better than average credit reputation, do a | | | | office supplies, postage and all the other little items that |
| large amount of business with them or make them | | | | go through this fund can add up to quite a lot when |
| your primary source for a particular product or service. | | | | looked at over a year's time. |
| Even vendors who do not ordinarily offer discounts | | | | Make sure you are recording each expense as the |
| should be asked as the prospect of an early payment | | | | money is removed from the fund and are reviewing |
| is always welcome. But if discounts or favorable terms | | | | these expenses on a monthly basis. Perhaps there are |
| are not available you can improve your cash flow by | | | | expenses that could be covered by a once a month |
| not paying early. You would, of course, always pay on | | | | check. Perhaps you are missing out on discounts (such |
| time but as we discussed in the last article, cash | | | | may be the case with office supplies). Is the money |
| produces income. | | | | just disappearing through loans and is anyone tracking |
| Don't give up that income by paying before your | | | | those "loan"? In any case if your petty cash fund is |
| vendor's expectations. If you are making a large | | | | $200 and you are replenishing it just once a month that |
| purchase try to negotiate paying over a longer period | | | | is a $2400.00 annual expense that you may not be |
| of time. To make the sale and keep money flowing in | | | | analyzing or controlling. |
| their business, vendors will sometimes extend terms | | | | Remember when in business you should be making |
| beyond the 30 day standard and often with no | | | | every penny work toward a profitable bottom line. |
| interest. | | | | |