Over time different we have heard different views on which is beneficial to the business between receivables and payables.
This topic among seasoned multinational businessmen is viewed differently from our traditional businessmen and women in Oyo state.
Meanwhile, the impact is the same.
It is not funny to note that some local business people do not even know the difference and the impact they have on their business. In modern-day SME it is impossible to discuss factors affecting SMEs without considering the impact of receivables and payables.
Receivables are money that the business owner is yet to collect from his debtor i.e sales made on credit. While payables are funds the business owner is yet to pay the suppliers. I usually refer to these two concepts as ‘cash-pause chain’. This is where you have a temporary stop of cash-flow. The fast or slow flows of both usually have an impact on the business.
The receivable days is calculated by dividing the amount of debtor (customers who are yet to pay) by total credit sales (i.e all credit sales for the year) and multiplying by 365 days. While payable days is by dividing the sales credit balance by the total cost of goods multiply by 365 days. Both are looking at a business year.
Implication On The Business
Relationship: During our research survey at some markets in Ibadan, we have come across business owners that have been tagged not to have integrity and this is largely because they have failed in their obligation in paying for a credit sales. We have also seen some who have also been tagged ‘wicked’ because they have forcefully recover funds from customers. So the implication is first on the business owner personality.
Financials: The relationship between these two concepts would have an impact on the business owner’s cash-flow. When the business owners pay out money to suppliers but are not getting paid by their customers, the business cash-flow would be tied down and may kill the business eventually. Note also that when the financials of the business is decomposed and deeply analyzed no single financial institution would want to lend to the business.
Lastly, note that the concepts of payables and receivables should be tactically applied to the business for it to survive.
Mukaila Ayuba writes weekly column on SMEs in Nigeria with focus on Oyo state.
