The Optimal Payment Policy

The Optimal Payment Policy11YOU SHOULD BE ABLE TO:Describe and differentiate the tenets of cash management.Identify the major objective of a payment policy.Critique the costs of paying sooner than necessary and of paying too late.Compare and contract the bill-paying procedures that can be employed by hospitality operators.TENANTS OF CASH MANAGEMENTKeep your money as long as possiblePay your bills at the correct timeCollect monies due as fast as you canOBJECTIVES OF PAYMENT POLICYKeep money as long as possible Pay bills at correct time Collect money due as quickly as possible COST OF PAYING SOONER THAN NECESSARYOpportunity costCash shortagesCOST OF PAYING TOO LATEReputation as a slow payerJeopardize future credit potentialDamage credit ratingPlaced on COD by suppliersCOST OF PAYING TOO LATE (CONT.)Interest and penalties Lose cash discounts Legal problems Poor credit riskLose good suppliers WHAT IS THE BEST PAYMENT POLICY?The best policy is one that allows you to keep your money as long as possible, unless you have a favorable incentive to pay early.THE MECHANICS OF BILL PAYINGPaid-outsInvoices on accountCredit card paymentsBill-paying serviceANOTHER WORD ABOUT DISCOUNTSBecome intent on discountsMay interfere with payment scheduleMight stay with discounting supplier longer than shouldMay need to borrow to take advantage of discountDoes discount alter payment due date