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Rafael Correa da Costa contato@agroflysistemas.com.br
Average Payment Term: Learn to Calculate
APP is an essential data to calculate the Net Working Capital.
The Average Payment Period (APP) shows how much time you have to settle accounts with your suppliers from the date of purchase. The longer this period, the better for your cash flow, as money from services does not always come in quickly. If you know how to use this indicator in your financial management, you will be able to better reconcile the payment and receipt dates improving cash flow projections. The APP, also called the Average Payment Term to Suppliers, is an essential indicator for the company’s financial management. It shows how long it takes the company, on average, to pay for products, services and supplies. For this, the APP considers the interval between the purchase date and the effective payment to third parties. With this result in hand, the manager is able to assess the impact of accounts payable on cash flow, reconcile payments and receipts, make projections and better manage working capital. For this reason, the APP is one of the most important KPIs (Key Performance Indicators) to understanding the behavior of finances in the organization. For a more complete analysis, it is also necessary to consider the average time for payment receipt of application services. With the APP, you know exactly how much time you have to pay your suppliers from the date of purchase and in this way you can organize better. When calculating the APP of suppliers, it is easier to keep accounts up to date and avoid delays or defaults in the company. After all, if you know how much time you have to pay off your purchases, you can plan to make payments on the correct dates and prepare your cash for these costs. This avoids losses from penalties and interest, in addition to the feared wear and tear on the relationship with
suppliers and partners. APP also helps you gain a more accurate view of finances and project your cash flow more efficiently. In addition to monitoring weekly and monthly reports with cash movements, it is necessary to estimate revenues and expenses for future periods as an essential part of corporate financial planning.
The first step in calculating the APP is to identify payments to suppliers on your balance sheet. One strategy used to improve the company’s financial health is to seek alignment between payment dates from suppliers and receipt of money for services. The goal is to receive as quickly as possible and have the maximum term to pay for the products, accelerating the financial cycle of the business. With APP, you can better schedule payment dates and compare payment terms, always looking for a balance in cash and optimizing working capital. The APP is an essential data to calculate the Net Working Capital. With the defined period, you can determine the financial reserve necessary to cover all the company’s accounts, considering the interval between the settlement of purchases from suppliers and the receipt of money from application services. Thus, it is possible to optimize working capital, avoiding excessive borrowing and paying interest to banks. ➤ agairupdate.com | A 29
