Addressing accounts payables, the first action needed is to get an overview of current account payables by understanding to which suppliers the largest spend is related and what payment terms they offer. When an overview is obtained, a negotiation is required to try to increase the payment terms for the largest invoices.
Another action to take is to cancel all non-essential purchases and to lower the order quantities when possible. However, considering the trade-off between the higher purchase price that comes with a decreased volume and the cost of capital for keeping excessive stock. Focus should also be spent on reviewing all indirect purchases by determining the criticality level and see which ones that could be cancelled and which ones where effort could be put on negotiating lower prices.
Facing financial challenges, it is also effective to implement a clear set of rules when approving invoices. E.g. all invoices above 50 KSEK is automatically stopped and any release of payment need to be decided on within the team. This will also raise awareness of payment terms for large invoices. A set of rules should also include a decision around standard terms that should be assigned to all small suppliers, which is an effective way to push payments for the tail of suppliers.
Risks that needs balancing:
- Damaged relationship
- Lost volume higher prices
- Quality effected negatively
However, all above stated measures comes with some risks to take into consideration. There is a chance that too tough negotiations can damage the relationship you have with your suppliers and by pushing them financially there is a risk that the quality of the products they sell are affected negatively. Given the current situation this should be regarded carefully before taking any decisions.