Pay The Oldest Bills First
A simple order for paying suppliers that helped one company clear a €40,000 overdraft in a year.
A company I once worked for had many overdue bills and an overdraft of about €40,000 when I started.
I was handling all their finances and accounts. Within one year the company was solvent.
No more overdue bills. No more overdraft. How? I paid the bills in a certain order.
How most companies pay
Paying bills is a standard function of any business, however much we want to keep the money.
Some companies pay whoever yells the loudest. Others pay nothing until they are asked. Some just pay cash for everything. However they do it, most pay suppliers in a random order.
The technique
Always pay the oldest bills first. Pay in order of due date.
Say you have 5 bills: 2 from 2 months ago, 2 from 1 month ago and 1 current. Pay the two from 2 months ago first. Then the two from 1 month ago. Then the current one.
How many you pay depends on how much money you have available.
And NEVER pay a bill in part. You will be advertising a cashflow problem, which is bad for business.
Some bills always come first: rent or mortgage, utilities, taxes and wages. These get paid on a regular basis. Everything else follows the order above.
What I did first at that company
I started by collecting all the money owed to the company, to create the money to pay bills with. See Credit Control for how to do that.
Once there was money available, I paid the oldest bill, then the next oldest, and so on.
Our weekly financial planning session became a game. Who could come up with the best ideas for spending all the money we now had spare! It was great fun!
When a supplier asks for payment
Explain your system and tell them they will get their turn as soon as possible.
An occasional supplier will not accept that and will threaten to cut off supplies. If you cannot handle them any other way, and no other supplier can provide the same goods, you may need to pay them ahead of someone whose turn it was. Then carry on with your system.
It all connects
This system means being organised. You know which bills you have, when they are due and how much money you have to pay them.
So it brings order to your accounts department. It also makes you collect your money on time, so you can pay your bills.
It is all interconnected, and every one of these actions helps a company become solvent and expand.
Do not get too serious about it, though. Play a game with it. Set targets and reward yourself when you meet them in the time you set. Get the other staff to help and reward them too.
As always, keep it simple... and Flourish and Prosper. Lisa
P.S. If you would like help seeing which bills you have, what is due and what is owed to you, ask me for the free Diagnostic Review, because it is a read-only look at your QuickBooks with a plain-English report, and I would rather you knew where you stand.
