Delay payment to boost sales
All company A company worthy of the name must negotiate payment terms with its suppliers in Israel. These terms will enable you in turn to extend credit to your customers, thereby increasing your chances of closing sales.
Some cash-strapped customers will look favorably on your credit period, and this crucial factor is likely to tip the balance in your favor during customer negotiations.
On the other hand, when your cash flow allows it, offer your suppliers to pay your invoices ahead of schedule, in exchange for a trade discount. In this way, you can save several thousand Shekels through a simple cash game.
As you can see, knowing how to correctly calculate your Supplier Payment Days in Israel is vital, and can pay off handsomely!
How do I calculate my DPF?
The average supplier payment period is determined by the following formula :
(trade payables incl. VAT / purchases incl. VAT) x 365 days.
Trade payables are equal to the average of opening and closing payables.
Here's an example to help you understand:
Company A: Year 2015.
Supplier debt January 2015: 120,000 shekels.
Supplier debt December 2015: 165,000 shekels.
Supplier purchases in 2015: 700,000 shekels.
We therefore obtain :
Average trade payables for 2015 = (165,000+120,000)/2 = 142,500.
Average supplier payment duration: 142,500/700,000 * 365 = 74.3 days.
What's the impact on my cash flow?
Managing supplier payment times can be a source of financing for the company.
Extending this period can help to postpone cash outflows. However, it may not be well received by suppliers, and may also indicate that the company is having cash-flow difficulties if it cannot pay its suppliers on time.
Short payment terms can also have an impact on cash flow, if the company also has large inventories and/or longer payment terms with customers.
As the company is both supplier and customer, it is essential to take into account the deadlines set by the customer and find the right balance.