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Oklahoma Small Business Cash Flow: Effects of Payment Terms

Many Oklahoma small businesses operate in a B2B (Business to Business) environment. Often times the vendor or provider is a small business while the customer is a large business. These larger businesses may demand payment terms of 30, 60 or even 90 days. This means the small business will be paid up to 90 days after the delivery of their products and services.

 

Let’s have a look at the effects to cash flow considering 30 and 60-day payment terms. Everything in this simple example is the same, with the exception of the payment terms.

 
 

30-Day Terms

Month

1

2

3

4

5

Begin Cash

0

(50)

(25)

50

100

Receipts

0

100

150

150

200

Deliveries

100

150

150

200

200

Costs

(50)

(75)

(75)

(100)

(100)

END Cash

(50)

(25)

50

100

200

 

60-Day Terms

Month

1

2

3

4

5

Begin Cash

0

(50)

(125)

(100)

(50)

Receipts

0

0

100

150

150

Deliveries

100

150

150

200

200

Cost

(50)

(75)

(75)

(100)

(100)

END Cash

(50)

(125)

(100)

(50)

0

 

As we can see, the effects are dramatic. With 30-day payment terms, ending cash is 200. With 60-day payment terms, ending cash is zero.

Certainly, there are other factors that affect cash flow. Factors like level of sales & receipts, changes in operating costs, taxes and capital expenditures.

Actions a Small Business Owner Can Take

The small business owner should make cash flow analysis part of their normal operations.

To learn more about cash flow, please read this blog that compares the income statement to the cash flow statement.

The small business owner should gain a full understanding or why cash is so important to their business.

To learn more about the importance of cash, please read this blog that discusses why cash is king!

Let us know how we can be helpful to you.