Expense Timing
August 26, 2010, 12:00 am
Copyright © 2010 Integrated Profitability TM
Accelerating the collection of revenue and postponing the paying of expenses have a positive, if temporary, impact on your cash-flow and profitability.
How much can your company affect the timing of expenses?
● Lagging payments
Pay as late as possible without incurring any fees or penalties
● Cash-discounts
When suppliers counter the first tactic above, consider taking advantage of discounts if you pay early; e.g., some jurisdictions offer discounts on property taxes; while some insurance companies tack on a 12% annual interest rate if you choose to pay via installments
● Payment terms
If you can, negotiate payment terms that let you pay bills within 30 (or more) days with no additional fees or finance charges
● Credit card statement cut-off dates
Know the cut-off or close date of your credit cards and, if possible, use the card just after that date and avoid using it during the days just prior to it. Depending on the terms of the card, doing so will give you an extra 30 days or so.
● Tax planning
Usually these provide temporary, one-time benefits. For example, the year I paid my whole property tax before December 31, I had more itemized deductions and, therefore, a lower tax liability. Of course, it was only a one-time timing benefit. Consult your tax accountant on any ideas in this area.
Bottomline:
● Expense timing events are only temporary and one-off
● Expenses that produce high returns are clearly a much better focus of management attention
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 77
Telephone: 925-202-6244
Copyright © 2010 Integrated Profitability TM
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