Video Transcript
The benefit of bringing forth the cash flow from down the track to today is that you’re obviously, as soon as you’re delivering the services or selling the goods to your customers, you’re accessing that cash. You’re getting access to that cash, rather than have it sitting as an asset on your balance sheet. Which is earning you no interest and your customers are using you as a bank. By accessing the cash, what you could do is then go and negotiate with your suppliers and say to them, instead of paying you on thirty day trade terms, I’ll pay you cash on delivery for your input supplies that I need on my production cycle or sales cycle. And ideally, for paying them up front you can negotiate what’s called an “early payment discount”. Now if you could get three, four, five. I’ve had in some circumstances, business has come back to me and say they were able to negotiate a 15% discount for early payment. Then, that’s a 15% improvement in GP margin straight away.
