Sign & Digital Graphics

October '17

Issue link: http://read.uberflip.com/i/878165

Contents of this Issue

Navigation

Page 36 of 120

32 • October 2017 • S I G N & D I G I T A L G R A P H I C S business days before the 15th in this example. Each morning, the A P clerk reaches into the numbered pocket corresponding to that day's date and posts those payments. A tall red card, or other appro- priate flag, should be placed in the appropri- ate pocket of the accor- dion file to indicate all payments forward of it have been paid on time. Once the payment is made, the retained cop- ies of the paperwork are filed in a folder for that vendor. Record-retention policies vary from company to company. My company retains records for a full ten years, while others consider five to be sufficient. Check with your accountant for a recom- mendation. The two prior years and the current one should be kept as hard cop- ies. The modern day solution to file man- agement is to scan the documents into Adobe Acrobat files (.pdf) right before physically filing them into the appropri- ate folders and cabinets. At least you will always have an electronic backup to the paperwork. The Time-Value of Money What if I told you that your com- pany could earn 73 percent interest on its money? Would you take me up on it? Of course you would! First, your business must demon- strate proficiency in AP management through sustained practice of the system described above. As a result, you should be rewarded with an "A1" credit rating. It is at that point that you are well within your right to ask for extended or "advan- taged" terms of payment from your sup- pliers. The most common incentive offered by vendors is described as 2 percent 10 days, Net 30. This means that, even though they're giving you 30 days to pay, if you expedite the payment to within 10 days of the invoice date, you can deduct two per- cent off of the amount due. Consider the follow- ing scenarios involving your company, taking four equal amounts of $1,000 and spending/ investing them each in different ways. In the first scenario, you purchase a $1,000 cer- tificate of deposit that e a r n s 1 . 2 5 p e r c e n t interest. After one year, it has earned $12.50— or a whopping 3.4 cents a day. In the sec- ond scenario, you place a $1,000 order for goods, under the terms of payment " COD"–– cash on delivery. Obviously, no gain of any kind will be realized on this $1,000. In the next example, a $1,000 order for goods is placed, but this time terms of Net 30 are offered. The goods are received on the same day as the invoice date, but your company doesn't pay the invoice until the 30th day. The bill is "paid in full," but only after 30 days of interest has been earned. At a 1.25 per- cent interest rate, the net gain is $1.02 (30 x 3.4 cents). In our final scenario, your company negotiates "2 percent 10 days, Net 30" terms and places an order for $1,000 worth of goods. The vendor ships the order on the date on the invoice, you take receipt of the materials five days later, and you pay the bill on the 10th day. But, instead of paying $1,000, you send a check for $980. Net gain: $20. How long would your money invested in the CD have to sit there to earn $20 in interest? Try 588 days. And what would the interest rate have to be to earn $20 on a $1,000 investment in 10 days? You guessed it: 73 percent. The moral of the story is to get your credit rating as high as possible, and then negotiate for the best terms possible. After that, be certain to take advantage of every payment incen- tive that comes your way. Good luck! SDG The most common incentive offered by vendors is described as 2 percent 10 days, Net 30. with equipment, technologies and products Register Here: THENBMSHOW.com or call 800.560.9941 Get Charlotte Charlotte Convention Center - Hall A October 26-28, 2017 Education Begins October 25

Articles in this issue

Links on this page

view archives of Sign & Digital Graphics - October '17