Working Capital Management

CHAPTER 8 Payables and Working Capital Issues

This chapter covers these topics:

• Consideration of appropriate policies and organizing for payables management.
• Understanding how ratios and other metrics assist in payables management.
• Learning about active versus passive management of payables.
• Evaluation of internal processes and outsourcing alternatives in managing payables.
• Review of methods of disbursing payroll, including direct deposit and paycards.

THE CURRENT LIABILITY WITH THE MOST working capital significance is accounts payable, which involves payments to vendors for inventory, supplies, and services. There can be little dispute as to the need to pay bills as they come due. However, decisions on payment dates and practices are often turned over to payables clerks who have limited knowledge of the float consequences of their actions.

As a result, companies make poor choices on when to pay, whether to take cash discounts, and how to manage the payables portion of the working capital timeline. In addition, current liabilities involve the payment of salaries and wages, and techniques for managing this activity are included in this chapter.

ELEMENTS OF PAYABLES MANAGEMENT

There are important elements in establishing a program to manage payables, including establishing policies, organizing for policy implementation, and monitoring results.

Developing Payables Policies

Policies formalize decisions on the disbursement of company funds for payables. In addition to the inventory ...