Greenfield was disappointed in having to file for Chapter 11. He believes Village Shoes could have reimbursed its creditors in full, over a protracted payment schedule, if it had been allowed to continue negotiations in an informal way outside bankruptcy court.
The filing has definitely taken its toll. "Of the 32 suppliers I deal with, the vast majority have put me on a cash-in-advance payment basis," Sullivan says. Still, he sees some positive signs: "Only one of my old suppliers has decided to stop doing business with me. And recently, about 6 agreed to put me back on a credit basis again." With tighter financial systems in place, Village Shoes will certainly be better positioned to withstand its region's continued economic downturn.
But the best thing Danny Sullivan may have going for him is what he's learned from his accounts-payable crisis. "If you find you've got problems paying your bills -- above all else, keep an open line of communication with all your suppliers," he says. He hadn't always done that in the past, in part because he was confused about the true nature of his financial problems. A chastened man, Sullivan adds, "Never be afraid to tell your creditors what's happening, where you see problems, and what you're planning to do about them."
After a moment's thought, he goes on. "Always, always, always send your creditors money when you tell them you're going to send them money. Even if you owe them a lot and can only afford to send a small sum, send it, because it shows your good faith."
And that's what a well-run accounts-payable system is all about.
RESOURCES
All-purpose financial-management software packages
The quickest way to upgrade your accounts payable is to switch to a computerized system that is integrated with all your other financial operations. A good program should automatically age your company's outstanding obligations, generate weekly analytic updates along with other cash-flow reports, and provide precautionary double checks, such as matching payments and invoices against original order forms. Chances are, your company can manage quite nicely with a general, all-purpose software package. Here are two systems that management consultant Paul Parish of the accounting firm Grant Thornton recommends:
* CYMA offers three packages of differing complexity targeted at small companies and start-ups. The software helps companies handle accounts payable, accounts receivable, and most other financial operations. Available through a network of certified dealers and consultants, the software operates on virtually all corporate computer systems. (Prices range from $49 to $995, depending on the software's complexity.) For a list of nearby dealers, call (800) 292-2962.
* Accounts Payable 2000, by Software 2000, is for companies with sales greater than $20 million. This is a pricey system that could pay off if you have a large and complicated set of creditors. It offers useful features such as duplicate-invoice validation, an on-line audit capacity to track individual payments, and, best of all, something called "interactive vendor analysis," to help companies figure out the most profitable date to pay each bill, given early-payment discounts and late fees. But it is targeted for IBM AS/400 systems and won't work on your PC. The accounts-payable module can be purchased separately for prices that range from $38,000 to $70,000, which means it's worth consulting with your accountant to see if you need anything that sophisticated. For the location of the sales office closest to you, call (800) 525-0490; in Massachusetts, call (508) 778-2000.
STRATEGIES THAT PAY OFF
How five small businesses are managing payables -- even when their own customers are taking longer to pay
* Prioritize: For Bill Rizzo, whose $7-million environmental-engineering firm, Rizzo Associates Inc., is located in Natick, Mass., financial obligations fall into three categories: the bills he pays as soon as they're due (personnel costs, bank loans, and taxes), bills he pays within 10 days (to professional contractors whose services he's already been reimbursed for by clients), and bills he tries to pay within 30 days (all others). As his company has begun to feel the recessionary pinch, he's "made a conscious decision," he says, "to stretch that third category out to 45 days. It's the only strategy that makes sense for us," he emphasizes. "When you look at our cash flow, accounts payable are the only factor that we ourselves have got some control over -- and we'll play with them if and when we have to."
* Negotiate: John Roberts, chief executive of $10-million Roberts Welding Contractors Inc., in Winterville, N.C., agrees -- but he prefers to negotiate longer payment terms in advance, although he says the process can be time-consuming. "We've got 1,500 different vendors that we deal with, and what we do is telephone every single major vendor, maybe a couple hundred of them, to ask when they absolutely have to have their money." Roberts's suppliers don't try to take advantage: "Some tell us 45 days is all right. One of our biggest steel suppliers said, 'Fifty-four days is OK -- just don't try to pay on the 55th day.' " That information then gets recorded in each vendors' accounts-payable file and sets the guidelines for payment of all major outstanding obligations. With smaller suppliers, where there's not much potential payoff from stretching out payments, Roberts aims for a 30-day turnaround of bills.
* Monitor payables closely: Each week Bill Senecal, chief financial officer of $2.8-million TMA Technologies Inc., in Bozeman, Mont., analyzes an accounts-payable aging schedule he gets from the accounting department along with other cash-flow documents. "It's always been our goal to pay our service professionals -- the lawyer, accountants, and so on -- within 20 days because they're with smaller firms, and other vendors at 30 days. But with the economic downturn, I've watched us push that closer to 40 days, which I see as our outside limit of what's acceptable," he says. Since Senecal tracks the numbers weekly, he's in a good position to stop the erosion fast: "At 40 days, I'll use our credit line to make payments if we can't bring the money in fast enough from our accounts-receivable operation."
