One of the keys to effective ACCOUNTS PAYABLE management is keeping track of disbursements to make sure they are in line with the company’s payment policy. Consider it the flip side of collections and remember that better tracking of payables results in better management of cash flow and reserves, even if only on a minor basis.

Earlier we suggested timely and regular payments. Let’s amend that recommendation slightly to say that payables should turn over as quickly as they need to in terms of the vendor agreement, company policy, or both. If cash is released too quickly, the company may not be taking full advantage of the trade credits offered by vendors. Also, that money, if invested, could be earning interest a little longer.

Need a benchmark? Your accounting department may want to try and match payables turnover with receivables turnover whenever possible. If the average collection time on receivables is 30 days (you wish!), then the average payables turnover time also should be 30 days. Under that scenario, the firm is using its suppliers to underwrite inventory. That means it can keep less cash on reserve, freeing it up for other, more important things.