Explore Informal Financing for Cash Flow Issues

By Steve Glaser

If cash flow is tight, approach your vendors for informal “financing” by way of a discount on payables for prompt payment. Vendors are often willing to consider prompt payment discounts for a number of reasons, including the fact that they know their payables will go to the top of your list for payment, their own cash flow concerns, reduced collection costs and the payables won’t age out of their borrowing base for line of credit availability.

Make sure to document any agreement in writing – you don’t want to pay and then have the vendor “forget” the discount after thanking you for payment. You should also confirm in writing that any payment will be applied to current payables, not to aged payables, unless you get the discount on the old balance as well.

Consider talking to your vendors about a discount program before you need it and make it a standard part of your negotiation of trade terms.

Published: 02/2010