Accounts Payable Is Float

A client called me last week frustrated about cash flow.

His business was profitable. Revenue was up. And yet he felt constantly squeezed.

We pulled up his books and found the problem in about four minutes. He was paying vendors in 7 days. His customers were paying him in 45.

He had trained himself to be everyone else's bank.

This is more common than most owners want to admit. There is a quiet obsession in business with being a "good payer." Paying early, paying fast, never letting an invoice sit. It feels responsible. It feels like integrity.

But here is what nobody tells you. Accounts payable is float. The time between when you receive goods or services and when you actually pay for them is working capital sitting in your account. It is yours to use, legally and ethically, within the terms your vendors agreed to.

If your terms say net 30, paying on day 7 is not a virtue. It is a gift you are giving away.

The business that masters cash flow is not always the one with the highest margins. It is often the one that understands the timing of money in and money out, and manages that gap with intention.

Pay your vendors on time. Not early. Not late. On time, as defined by the agreement you both signed.

That discipline alone can free up tens of thousands of dollars in working capital that you did not even know you had.

So here is my question for you. Do you actually know your average days payable outstanding, and have you ever compared it to your average days to collect from customers?

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From "The Owner's Almanac" - 90 days to build a business that runs without you. Available on Amazon.