One often-overlooked means of keeping cash in your business bank account for as long as possible is to set up favorable payment terms with vendors and suppliers. Most businesses focus on keeping accounts receivable as low as possible, but what about maximizing the potential of the bills you owe – your accounts payable?

Managing accounts payable starts with establishing payment terms. Make sure you set up clear expectations and understandings ahead of time, in writing, preferably within a contract that spells out terms with legal specificity.

Clear expectations help limit misunderstandings and, more importantly, legal repercussions or liability. The best accounts payable strategies maximize cash flow, keeping within legal and ethical boundaries.

What are your overall accounts payable goals?

  • Keep company cash in your account as long as possible.
  • Streamline administrative and accounting functions to cut operating costs.
  • Spread large payments over a longer period of time without incurring fees or penalties. This is especially useful in long-term business relationships with subcontractors and suppliers.
  • Take advantage of consignment opportunities, only paying when goods are sold or consumed. Many suppliers are happy to carry the financial load as long as you’re selling and keeping up with agreed-upon payment milestones.

Remember, as the customer, you have bargaining power. Vendors and suppliers want your business. They need your business. Most will be willing to negotiate favorable terms, especially if you have the potential to generate significant business for them.

Establish Favorable Terms: In terms of cash flow, you and your vendors have conflicting goals. Your vendors want to be paid as quickly as possible, while you want to extend the time of payment for as long as possible. Several supply chain methods can be used to extend the time of actual payment:

Invoice terms.  Invoices are typically paid “on receipt” or within a certain number of days after receipt. Typical terms include “net 10,” “net 30,” or even “net 45.” The longer the term, the more time you have to pay and the smoother your monthly cash flow could be.

Negotiate the longest payback terms possible, but also ask for discounts for early payments when cash flow allows. Receiving a 2 percent discount for early payment instantly improves your company’s bottom line by a corresponding 2 percent

Use payment methods other than paper checks. For example, a wire transfer or ACH payment made the day a bill is due keeps cash in your account as long as possible. It also makes suppliers of inventory and raw materials happy because it simplifies bookkeeping all around.

If you can’t negotiate longer payment terms – especially if payment is due on or close to receipt – consider paying with a credit card instead of a check. Credit card bills are due monthly. If you charge a payment on the first of the month, the actual payment to the credit card company may not be due for several weeks, and in some cases you have a 30-day grace period. This way, you pay vendors and suppliers on time, but hang on to your cash longer. As an added bonus, you may get points or cash back from your bank by using a credit card.

Spread Out Accounts Payable

Making large payments can cramp your cash flow. There are two ways to negotiate favorable terms when you need to make large payments:

Match payments to deliverables. Payments linked to progress milestones can space out monies due. For example, you may pay 25% down, 25% when half the work is done, and the remainder at the end of the project. Additionally, you may specify that a large order be delivered in smaller “bites” over time, only paying for what’s received.

Create appropriate terms that sync up with accounts receivable. Sometimes progress payments don’t make sense, especially if you take full receipt of an entire order. In that case, negotiate a payment schedule, in writing, based on projected company earnings over the next quarter, for instance. Be sure to have all payment terms reviewed by legal counsel before agreeing to suppliers’ terms.


Occasionally a vendor or supplier delivers product or inventory on consignment, only requiring payment when products are sold or supplies consumed. This can be a great opportunity, especially for start-ups and new companies scrambling to stay ahead of the payment curve.

Think about how your business operates and, most importantly, how you use and consume the products and services your vendors supply. Then, negotiate payment terms and methods that keep as much cash as possible in your account for as long as possible.


The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC