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- E-Commerce Reboot: Track 2 Finance (4/4)
E-Commerce Reboot: Track 2 Finance (4/4)
Working AP/AR
Time to Read: < 2 minutes
Hi there! š
Today we're diving into a topic that might make some of you groan.
Accounts Payable (AP) and Accounts Receivable (AR).
Or in plain English; bills you have to pay & bills you have to collect.
But stick with me, because understanding and managing these aspects of your business is a huge asset.
When I first joined board meetings, the detailed discussions on AP and AR would honestly make me want to doze off.
I was all about the revenue line, excited to try new growth hacks and explore fresh markets. Meanwhile, finance seemed to be stuck on accounting.
But here's the thing: those "accounting geeks" are onto something crucial.
Their focus was clear and simple:
1ļøā£ Recoup as much AR as possible.
2ļøā£ Negotiate longer AP periods.
You see, businesses pride themselves on paying their bills on time. But in business, cash flow is your lifeline.
The longer you can hold onto your cash, the more "oxygen" you have to fuel your business. This oxygen can prevent an early death and even give you the resources to invest in high-ROI growth initiatives.
Here's a practical advice:
If you're on Net 15 for AP, push for Net 30.
If you're on Net 30, aim for Net 60.
Yes, your vendors might complain. But after a month or so, you'll see your cash reserves grow. This increased liquidity allows you to fund initiatives that can drive significant growth, creating a compounding effect on your efforts.
Think of it as securing an interest-free loan from your vendors. Mastering your AP and AR management isn't just about keeping the books balancedāit's about creating the financial flexibility to drive your business forward.
Bonus: Google on how Gymshark used this tactic to grow insanely fast. Their AP went from 60 to 180 days (thatās half a year!).
This is the end of Track 2 Finance.
Next up; Track 3 Operations
Stay tuned.
Have a great day,
Erik
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